BANKING: Franklin National Fizzles Out

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Meanwhile, Comptroller Smith had been observing the troubles of the beleaguered bank and had alerted the Federal Deposit Insurance Corp. to try to arrange a Government-assisted purchase of Franklin. The FDIC began negotiations with some 16 banks. Finally four of them—First National City Bank, Chemical Bank, Manufacturers Hanover Trust Co. and European-American —offered bids. Franklin National, in turn, waged a last-ditch campaign to remain an independent but smaller institution by retreating to Long Island.

Corporate Accounts. When that plan seemed totally unworkable, the FDIC Invited the four takeover finalists to submit bids. European-American's officers, who had previously served mostly U.S. corporate accounts, were eager to break into such areas as home mortgage loans and checking and savings accounts via Franklin National; they also wanted the lucrative Long Island market. They offered $125 million for Franklin's assets, topping the nearest bid from Manufacturers Hanover by several million dollars. By the time Franklin National's doors opened the next morning, "EA" signs were on the windows.

EA will get $1.6 billion worth of Franklin National's assets. Overnight, EA deposits in the U.S. jumped from $480 million to $1.9 billion. Moreover, it will have its pick of the bank's branch offices and 2,800 employees. Chairman Harry E. Ekblom, 46, a Brooklyn-born lawyer and onetime senior vice president in charge of European operations for Chase Manhattan Bank, promptly made a helicopter visit to Franklin National's Long Island branches. Later, he announced that EA would automatically pick up all Franklin National's consumer installment loans.

The FDIC has given EA the option of choosing whatever it wants from Franklin National's $2.4 billion in commercial and international loans. The rest will be handed over to the FDIC itself, which will trade them or hold them to maturity, probably collecting enough to pay off the Fed's $1.75 billion loan.

EA stands a fab" chance of turning the old Franklin National into a success. If so, it may be one of the few winners in the deal. The 22,000 stockholders in Franklin National, many of whom are New York businessmen and other individuals, will probably lose their total investment. And the FDIC and other federal agencies lost luster in the debacle. In fact, Comptroller Smith conceded last week that "maybe we were unduly secure that a major bank that had prospered for many years couldn't develop big problems."

Faced with the failure of more than 50 federally insured banks in the past decade, the FDIC and other regulatory agencies need to keep a much closer watch not only on the roughly 150 banks on the FDIC'S "problem" list but also on virtually every bank in the nation. That way ailing banks will stand a better chance of being helped long before they reach a Franklin finale.

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