Brinkmanship

Chrysler's banks play tough

Chrysler has endured a series of heart-stopping brushes with bankruptcy over the past year, but last week's was the most perilous and protracted. A tiny group of Chrysler's far-flung lenders in such places as North Little Rock, Ark., and Fort Wayne, Ind., threatened to upset the automaker's carefully arranged $1.5 billion federal loan guarantee package and cause the company's financial collapse. Said a top Michigan bank official in the middle of the fray: "For the first time, some of the responsible guys are talking about what they'd do in a bankruptcy."

The crisis arose when only 17 of the 400 banks that have extended Chrysler some $4.4 billion in private credit decided, each for its own reason, not to go along with the rescue plan. For example, Chrysler owed a relatively minor $525,000 to the American National Bank and Trust Co. of Rockford, Ill., but President David Knapp was personally opposed to the federal rescue of the company. He also seemed to be enjoying a chance to display his displeasure on the national stage, as television cameras followed him around and Treasury Secretary G. William Miller telephoned to ask his cooperation.

With such a small part of the total loan package at stake, Chrysler could have bought back the loans from the recalcitrant banks. But with Chrysler's lenders nervous at best over the complex credit deal, it was clear the defection of just one or two banks would jeopardize the entire loan package. Thus the company's tactic was to besiege the holdout bankers with telephone calls from Congressmen and big-city bankers. Chrysler workers also threatened to withdraw all their savings accounts from some of the banks. The tiny Crestwood Metro Bank in St. Louis, which was owed less than $500,000, received telephone calls or visits from Steven Miller, Chrysler's assistant treasurer, John McGillicuddy, chairman of Manufacturers Hanover Trust Co. and Treasury Secretary Miller. It quickly capitulated. Rockford's American National Bank and Trust, which was considered the hardest sell, received an anonymous bomb threat. It soon agreed.

By week's end Chrysler's full-court press had succeeded. All 17 banks had fallen into line, including the Tejarat Bank of Tehran, to which Chrysler owed $3.6 million. The last holdout was the Deutsche Genossenschaftsbank of Frankfurt, West Germany. Said one banker:

"When it got down to the last one or two, the pressure became just unbearable."

For Chrysler, the warming of bankers' hearts came none too soon. The company has not paid in more than a week the firms that supply it with almost everything from steel to headlights, and any one of them could have started legal procedures to receive payment, which in turn would force Chrysler into bankruptcy.

Government officials are expected to meet this week in Washington and give approval for payment of the first $500 million in Government-guaranteed loans to Chrysler. Very soon thereafter, Salomon Bros., a Wall Street investment banking firm, will send the money via electronic transfer to Chrysler's bank accounts. Then company financial officials will stamp out thousands of checks to the firm's unpaid suppliers and relieve the threat of default. Having once again escaped death by bankruptcy, will the troubled automaker eventually survive? Tune in again shortly.

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