"Bert, I'm Proud of You"

So said the President, but the row over Lance's finances is not over

"My faith in the character and competence of Bert Lance has been reconfirmed. His services to this country can and should continue...Bert, I'm proud of you. "

Jimmy Carter offered that resounding endorsement of Bert Lance, his embattled director of the Office of Management and Budget, at a hastily called White House press conference last week. By interrupting his vacation at Camp David and flying to Washington, the President was not only dramatizing his support for Lance but also signaling his belief that the worst of Bert's problems were over. It was a bold and risky move by Carter as he faced his most serious personnel decision since he took office seven months ago.

At issue was the question of whether Lance's financial dealings as a freewheeling Georgia banker met the high ethical standards Carter has set for his top officials. The press began probing into Lance's shaky personal finances in May and discovered that he had borrowed heavily to acquire control of Atlanta's National Bank of Georgia and to maintain a lavish lifestyle. Those disclosures sparked several official investigations.

The most eagerly awaited inquiry was one launched last month by Comptroller of the Currency John Heimann, whose office regulates and supervises all national banks. After 35 hectic days, Heimann and a 40-member staff produced a weighty (7 1/2 lbs.) three-volume, 394-page document. The report concluded that Lance had done nothing illegal in his varied dealings. But it also found that his banking habits "raised unresolved questions as to what constitutes acceptable banking practice." More specifically, it accused Georgia's Calhoun First National Bank of permitting "unsafe and unsound banking practices" while Lance was its president in 1973 and 1974.

It was this report that emboldened Carter to place his full prestige behind Lance. Lance himself described the report as "very favorable"--a clear vindication. Actually, it fell far short of that.

To be sure, the report deflated critics who had contended that some of Lance's pre-White House financial dealings were downright illegal. Most often cited by the critics was Lance's pattern of seeking personal loans from banks with which his own banks in Calhoun and Atlanta had developed "correspondent relationships" (see ECONOMY & BUSINESS). Yet the report expressed serious doubts about whether this practice was acceptable, even if legal. It also criticized the Calhoun bank for permitting massive overdrafts on the personal accounts of officers and their relatives.

More trouble may be ahead for Lance.

Heimann promised to pursue other investigations already under way, including the question of whether Lance had improperly used his Atlanta bank's aircraft to take himself and Carter on purely political trips. That would amount to an illegal corporate political contribution if the bank were not reimbursed for such travel. The Senate Governmental Affairs Committee intends to reopen in two weeks its less than aggressive hearings into Lance's financial affairs. Democratic Chairman Abraham Ribicoff went into the earlier inquiry like a lion and came out like a lamb, lauding Lance and lambasting the press. He has already announced that he is satisfied that the comptroller's report has cleared Lance. At least two House committees are also considering related inquiries, and the Securities and Exchange Commission is studying whether Lance's management of his banks and unreported personal borrowing were in the best interest of bank stockholders.

Despite the ordeal still ahead of him, it seems probable that Lance can now ride out the storm. Predicted Presidential Aide Hamilton Jordan: "This thing is not going to end tomorrow or next week, but it won't go on much longer." At his press conference, Lance made it clear that, Carter willing, he intended to stay hi office. Said he: "My ability to carry out my job has not been damaged."

That was not quite accurate. The revelation of Lance's parlous personal finances makes him an unconvincing spokesman for Carter's philosophy of tightfisted national spending and a balanced budget. Up to now, Lance has been the most prominent defender of the Administration's economic policies, overshadowing talented but far less flamboyant figures like Treasury Secretary Michael Blumenthal and Charles Schultze, chairman of the Council of Economic Advisers. Both of these men may now become much more visible.

Before that happens, though, attention is likely to remain focused for some time on Lance and on the comptroller's report. The report takes up each of the most questionable dealings cited by Lance's critics and matter of factly relates its findings. They include:

The Manufacturers loan This loan seemed to come closest to violating the law that bars a bank officer from setting up a correspondent relationship with another bank solely to acquire a personal loan. Lance asked for a $2.6 million loan from the New York bank on April 16, 1975, so that he and two partners could acquire controlling interest in the National Bank of Georgia (NBG). While the loan was being considered, Manufacturers Hanover Trust Vice President Betsy Jo Viener stated in an internal memo: "Balances of 20% of the facility [a banking term for a loan] will be maintained in a National Bank of Georgia account and we anticipate in addition having all the New York activity for the bank flow through this account, yielding balances up to $1 million on a monthly average." That made it sound as if Lance had promised to open a correspondent-bank relationship as a trade-off for getting the New York bank loan.

On April 29,13 days after Lance's visit to Manufacturers Hanover Trust, NBG deposited $250,000 there. The amount in this interest-free account reached a high of $1.1 million in 1976--a sum conceded to be "somewhat excessive" by one of the Georgia bank's officials in a letter to the comptroller. Yet NBG officials also noted that their bank's earlier correspondent relationship with New York's Citibank had been unsatisfactory. According to one memo, "Manufacturers Hanover was much more responsive to the needs of Southern correspondents."

Comptroller Heimann concluded that "there is some documentary and circumstantial evidence suggesting the possibility that a 20% compensating balance from NBG was a condition of the loan to Mr. Lance from MHT [Manufacturers Hanover Trust]." But he also found that all the officials involved, including Lance, had denied under oath that any such deal had been struck. On balance, said the report, "there appears to be no violation of any applicable laws or regulations."

The Chicago loan Lance later received a loan of $3.4 million from the First National Bank of Chicago, a month after NBG had established a correspondent relationship with a $50,000 deposit. On Jan. 6,1977, the day that Lance's loan was approved, a memo written by J.G. Migely, the lending officer of the Chicago bank, noted that Lance had been given a $4 million line of credit, that he was to become the OMB director and that "we are delighted to have this gentleman's important business." Memos about the loan also specifically stated that "no compensating balance" was expected from the Georgia bank as a condition of Lance's loan.

Lance's record as a borrower The comptroller's report notes that Lance never received preferential interest rates for the loans he received from correspondent banks. He paid as much as 1% above the prune lending rate, a fairly standard figure for major clients. The report does indicate, however, that the banks did not always find Lance an ideal customer. Manufacturers Hanover, for example, sent him eight letters seeking verification of the collateral supporting his loan (mostly shares in the Atlanta bank). At one point, the New York bank demanded that he increase the collateral. Another time, it dunned him for $22,000 in overdue interest payments. Only weeks ago, Chicago's First National asked for more collateral on Lance's current loan.

Lance's borrowing typified the widespread business practice of one executive extending favors to another in expectation of picking up new business in return. As Lance put it at his press conference, "You do your business with people who know you." While not illegal, however, Lance's pattern of shifting loans and correspondent relationships plainly troubled the comptroller. His office will conduct a further study as to whether banking regulations need to be tightened or clarified.

Personal overdrafts Probably more harmful to Lance's image as a tightfisted budget director bent on balancing the national ledger was the report's confirmation that his Calhoun bank winked at massive overdrafts by the bank's officers and their relatives. According to the report, Lance's wife LaBelle overdrew her account by as much as $110,000 in the last four months of 1974. Between September 1974 and April 1975, nine Lance relatives amassed overdrafts totaling an impressive $450,000. In December 1975, federal bank examiners insisted that the overdrafts be stopped.

The comptroller's report not only called this "unsafe and unsound banking" but charged that some of the extended credit, including that to Lance, technically violated the law. The standard practice involving such violations, however, was not to prosecute but to order the practice stopped. When the comptroller's office did so in 1975, the Calhoun bank readily complied with the order.

Financing Lance's campaign Comptroller Heimann's report took note of a more serious violation: overdrafts by the Calhoun bank on two accounts opened to finance Lance's unsuccessful campaign for Governor of Georgia in 1973 and 1974. One account was overdrawn by $76,000, the other by $152,000. Incredibly, the bank even paid bills for Lance's campaign activities totaling $78,000 and listed them as "bank expenses." The bank was later reimbursed by Lance. All this had been examined by the comptroller's office in 1975 and was found to be so serious a matter that it was referred to the Justice Department for possible prosecution. At about the same time, the bank was ordered to stop any further overdrafts to Lance.

Heimann's report showed no change in his office's critical attitude toward these deals. It declared that referring the matter to the Justice Department had been "appropriate." After keeping the case open for nine months, however, the U.S. Attorney in Atlanta decided that there was no basis for prosecution and closed it--just one day before the announcement of Lance's OMB appointment.

Teamsters and embezzlers The report found nothing to criticize in the fact that in March 1976 Lance's Atlanta bank landed the right to manage $17.5 million in Teamster pension funds for an undisclosed fee. It noted that, while Lance had helped to initiate the agreement with the Teamsters, he had not taken part in the detailed negotiations. Nor did the report fault Lance specifically for the Atlanta bank's willingness to lend one of the Calhoun bank's officers, Billy L. Campbell, as much as $250,000 only weeks before his arrest for embezzling nearly $1 million from the Calhoun bank from 1971 to 1975. Lance has been criticized for a serious lapse of judgment in okaying a sizable loan to a man whose finances were known to be shaky. But the comptroller did not report such criticism and did note that it was Lance who eventually referred the case to the FBI (Campbell was convicted of embezzlement and is serving an eight-year prison term).

Lance was also gigged for failing to file reports to his Georgia banks of his varied outside business interests and numerous personal loans. While technically illegal, such failure normally has drawn an order to comply, rather than prosecution.

While White House officials breathed more easily in the belief that the worst of the Lance crisis had passed, some of the President's top aides wonder how heavy a toll the crisis will take. In particular, they are concerned that Carter's image as a zealous upholder of ethical purity may be seriously tarnished. Yet, barring some unexpected revelation of wrongdoing, the Lance furor has now receded to a primarily political question: How many people were concerned that the nation's budget is being directed by a man who is having incredible problems with his own budget?

Indeed, one of the biggest threats to Lance's continuation in office may prove to be the question of his personal finances. Can he stay in Washington on his $57,500 Government salary? Or will he find that keeping up with the interest payments on his sizable loans will force him to seek a more lucrative job in private industry? If he stays at the Office of Management and Budget, there may be a marked change in how he operates. Previously, he gave less than his complete attention to the day-by-day management of the budget and Government reorganization. Now, with his wings clipped as the President's avenging angel of fiscal prudence, Lance at least has an opportunity to turn all of his ample energy and talent to the formidable job at hand.

This file is automatically generated by a robot program, so viewer discretion is required.