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Says Chairman Barry Sullivan, who worked with Ogden at Chase: "Before long I'm going to have to ask to meet him on a football field and beat his brains out."
This is not the first tune the 127-year-old Continental has been bailed out by the Federal Government. In 1934 the Reconstruction Finance Corp. rescued Continental after a series of bad Depression loans. Continental later regained prosperity and helped turn Chicago's downtown financial district on LaSalle Street into the futures-and commodities-trading capital of the world. But trouble returned as a result of the bank's go-go lending during the 1970s. Under former Chairman Roger Anderson, who was eased out last February, Continental lent freely for oil and gas drilling, condominium development and Latin American projects; many of the projects went bust. The biggest blow came in September 1982, when Oklahoma City's Penn Square Bank failed. Continental held more than $1 billion in Penn Square's bad energy loans. Continental last week released the results of a 5½-month-old internal probe that blamed the Penn Square involvement on three Continental lending officers, who have since been fired. One of them had accepted $565,000 in personal loans from the Oklahoma City bank. In the summer of 1981, a young vice president, Kathleen Kenefick, had warned superiors about Penn Square's problems, but her report was largely ignored.
By last May, Continental had clamped down on its freewheeling lending and was carrying out a recovery plan. Then rumors began to circulate that federal officials were concerned about the bank's problems and were trying to arrange a merger with three Japanese financial institutions. The reports were untrue, but that did not matter.
They soon became a self-fulfilling prophecy. The rumors, first published by the Commodity News Service and then repeated around the world, prompted many foreign depositors to begin taking their money out of Continental. The FDIC arranged emergency infusions of cash and pushed Continental to find a merger partner. A number of leading banks, including New York's Citicorp and Chemical Bank and First Chicago, examined Continental's books; they were unwilling to take over the ailing bank without large amounts of financial help from the FDIC, which the agency was unwilling to give.
That forced the FDIC to become a rescuer of last resort.
Most experts believe the action was unavoidable because of Continental's dependence on large, mostly uninsured deposits from U.S. and foreign institutions.
When the run started, only 7% of Continental's deposits were from consumers, with the rest from institutional clients.
Big corporate customers, whose deposits are above the $100,000 FDIC insurance limit, are quicker to pull their money out of a troubled bank than small depositors, who are usually insured. That situation made Continental vulnerable to the runaway rumors.