The Big Showdown over Banker Bert

A promise of neither a witch hunt nor a whitewash

Without even a building to call its own, ;he Comptroller of the Currency's office is a federal backwater, responsible only for the important but dull job of regulating the 4,600 national banks. Suddenly, the comptroller's quarters at the L'Enfant Plaza hotel are among the busiest in Washington, as U.S. bank examiners press their potentially explosive investigation of Bert Lance's financial affairs. The comptroller's lengthy report is due soon, perhaps this week, and could save or squash the powerful budget director, who is Jimmy Carter's old pal, former creditor and longtime close confidant. Says Deputy Comptroller C. Westbrook Murphy: "All we're dealing with is the survival of Bert Lance and the reputation of the President, not to mention the performance of some of the biggest banks in the world."

Couriers hustle to the comptroller's office with confidential records shipped from the banks that figure in the investigation, notably Chicago's First National, New York's Manufacturers Hanover Trust and Atlanta's National Bank of Georgia. Some 30 bank examiners and half a dozen lawyers so far have pored over more than 5,000 pages of documents. At night, guards patrol the offices to prevent any theft or tampering with evidence. Some portions of the report were being written last week, but the bulk of the investigation was still being pursued, under the direction of John G. Heimann, 48, the deceptively youthful comptroller.

Heimann began the probe the day after he was sworn into office on July 21. A smart and ambitious moderate Democrat, he has firsthand knowledge of the highflying financial world in which Lance made his fortune. An economics graduate of Syracuse University ('50), Heimann started with the Wall Street investment house of Smith, Barney & Co., promising to quit in two years if he could not create new business in the virgin field of advising labor unions on investing pension funds. "Nothing happened for a year and three-quarters," he recalled. "I worked terribly hard, saw everybody, but nothing happened. Then AFTRA [American Federation of Television and Radio Artists] came in, and after that the business built very rapidly." Heimann became known as one of Wall Street's brightest young comers and began earning enough to support his wife and two children in lavish style on Manhattan's East Side.

In 1975 New York Governor Hugh Carey, a friend, recruited him as the state's superintendent of banks, at a big pay cut (to $47,800 a year). Last year he moved on to become New York commissioner of housing and community renewal and straightened out the state's nearly bankrupt programs in those areas. Heimann was an early backer of Jimmy Carter. Soon after beginning the investigation of Lance's finances, Heimann ordered his top staff to conduct "neither a whitewash nor a witch hunt."

The investigators are chiefly interested in determining whether Lance, while president of the National Bank of Georgia, improperly used NBG's correspondent accounts with other banks as inducements to get large personal loans. He borrowed $185,000 from Atlanta's Citizens and Southern Bank, $443,000 from Knoxville's United American Bank, $651,000 from Augusta's Georgia Railroad Bank and Trust Co., and $3.4 million from Chicago's First National Bank. Lance used most of the Chicago loan to repay $2.6 million that he had borrowed in April 1975 from Manufacturers Hanover Trust to buy 164,000 shares of stock in the National Bank of Georgia.*

Heimann's investigators are also re-examining what Deputy Comptroller Murphy describes as "sloppy country banking" that federal examiners uncovered during Lance's presidency of Georgia's tiny Calhoun First National Bank from 1963 to 1974. Among other questionable practices, members of Lance's family regularly overdrew their accounts at the bank. In addition, the committee for Lance's unsuccessful 1974 campaign for Governor overdrew its account at the bank by as much as $100,000. Certainly none of his rivals could have got such favored treatment from Lance's banks. Other Georgia banks also lent money to Lance's campaign, and these transactions too are being scrutinized.

After a sporadic probe that turned up no legal violations, John Stokes, who was then U.S. Attorney in Atlanta, ordered the case closed last Dec. 2--the day before Carter named Lance as budget director. The Assistant U.S. Attorney, Jeffrey Bogart, says he objected in vain to closing the case. He told TIME last week, "There were matters that needed to be explored, but I was short-circuited."

At Lance's confirmation hearing, acting Comptroller of the Currency Robert Bloom reported that the overdrafts, though they had been repaid with interest, did not constitute good banking practice. But, much to the later chagrin of the comptroller's office, Bloom gave Lance a clean bill of health--despite the fact that the comptroller's regional administrator in Atlanta had negotiated a potentially embarrassing agreement with the Calhoun bank in December 1975. The agreement sought improvement of bank management, and it was backed up by the filing of bank reports and monthly inspections by bank examiners. Last week the New York Times reported that the comptroller's Atlanta office canceled the agreement (on the ground that the problems were corrected) the day before news broke of Lance's forthcoming. At Heimann's request, Internal Revenue Service agents are reviewing how well the office handled the investigation of Lance before his confirmation.

Still more probes are under consideration. The Securities and Exchange Commission may begin an inquiry into NBG's affairs. Senate Republicans are at last showing some interest in Lance's troubles. They had been uncharacteristically silent, chiefly because they liked his moderate economic views. Now Senator Robert Dole and House Republican Conference Chairman John Anderson are urging Connecticut Democrat Abraham Ribicoff to reopen his Senate Government Affairs Committee's once-over-lightly hearing on Lance's loans. Without wait ing for that investigation to get under way, Anderson last week became the first major congressional figure to call publicly for Lance's resignation. "It seems clear," said Anderson, that Lance "used his position as head of a bank, as a trustee, in effect, to further his own position."

At the White House, Carter and his assistants have avoided commenting on the Lance investigation. Last week Press Secretary Jody Powell cautiously said nothing that could be interpreted as defending or expressing confidence in Lance --and further fueled speculation that the President is trying to distance himself from Lance. Aides insist this is not the case. Says one: "He is just trying to show that he has no intention of interfering in the investigation." Presidential aides also say that Carter and Lance have not yet gotten together to discuss the comptrol ler's probe, though Carter was briefed on it last week by Treasury Secretary Michael Blumenthal.

Presidential assistants were still betting that Lance would be cleared of intentional wrongdoing. Said one: "Bert Lance would never knowingly do anything illegal." They were much less sure that he would not be cited for bad judgment or playing a bit too loose with his banking relationships or potential conflicts of interest. A feeling was growing in the White House that Lance had, at the very least, violated Carter's requirement that appointees avoid even the appearance of impropriety, and so might have to resign. If Lance's position should become untenable, Carter's associates doubt that the President will have to ask his old buddy to step down. Said a top aide: "Bert will know if it's time for him to go."

*Forced this year to write off $2.3 million in bad real estate loans, the bank last week indefinitely suspended its 200-a-share quarterly dividend. That will cut the heavily indebted Lance's income by about $40,000 every three months.

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