Bankers Dozin'

Page 4 of 6

In January 1990, First Interstate lending officer Jeffrey White instructed Symington to make sure he met all of the pension funds' requirements so that the $10 million loan would be funded.

"The Bank expects you to meet these deadlines, and its position is that the permanent funding should occur as soon as it is possible," White wrote Symington on January 19, 1990.

About the same time, First Interstate agreed to extend the unpaid Alta Mesa loan for a third time--until March 15, 1990--but this time there was no extension fee. Once again, the Symington partnership failed to meet the deadline.

The next day, March 16, 1990, the pension funds allege, Cockerham and Symington induced First Interstate to join in a conspiracy to hide Symington's financial problems from the pension funds.

The pension funds had already expressed reluctance about funding the loan because of the deteriorating Phoenix real estate market. Symington and First Interstate faced the June 30, 1990, deadline to meet the pension funds' requirements or the loan could be canceled.

On March 16, 1990, the pension funds allege Cockerham sent a letter to First Interstate suggesting that Symington and the bank would both benefit from informal handling of the Alta Mesa loan default rather than a public foreclosure.

"It is in the best interest of both parties to work together to stabilize the property and, ultimately, to sell it," Cockerham wrote.

The pension funds allege that First Interstate accepted Cockerham's offer and subsequently took actions that violated the bank's internal lending practices.

On May 25, 1990, First Interstate agreed to delay any efforts to collect on the delinquent Alta Mesa loan until July 1, 1990--one day after the pension funds were scheduled to fund the permanent Mercado loan, which would repay First Interstate.

First Interstate executive Douglas Hawes requested authorization to strike a forbearance agreement to "allow time for finalization of the Mercado loan pay-off." Symington and his wife, Ann, signed the forbearance agreement on May 29, 1990.

Delaying action on the Alta Mesa loan removed one obstacle that could have triggered the pension funds to refuse funding the permanent loan.

But First Interstate Bank soon faced the bitter prospect of providing additional loans to Symington.

About the same the Alta Mesa forbearance agreement was being finalized, the union pension funds--which knew nothing about the forbearance--informed Symington and First Interstate that they would not fund the entire amount of the construction loan Symington owed to First Interstate.

Instead, the pension funds planned to "hold back" $2.8 million of the $10 million loan to cover future tenant improvements and projected operating deficits.

The pension funds' plan meant that First Interstate would only receive $7.2 million of the $8.4 million owed by Symington. First Interstate would have to rely on Symington, who already had defaulted on the Alta Mesa loan, to cover the $1.2 million Mercado shortfall.

To make matters worse for First Interstate, the $1.2 million would be unsecured debt because First Interstate would have to give up its deed of trust to the Mercado in exchange for the pension funds' loan proceeds.

First Interstate was in a bind.
The bank didn't want to be forced to rely on Symington for repayment, because Symington had admitted to the bank that he couldn't pay it. But First Interstate didn't want to press the pension funds too hard about funding the full $10 million in fear the pension funds would walk away from the table.

First Interstate lending officer Jeffrey White notified the bank's senior loan committee of the problems in a detailed June 7, 1990, memorandum. He suggested that the bank be prepared to write off the $1.2 million Mercado shortfall as uncollectable from Symington.

White also informed the committee that Symington had overstated his $11.9 million net worth when he submitted a personal financial statement to First Interstate in May 1990.

"Symington's stated net worth is almost entirely vested in commercial real estate, indicated market values of which he has stated do not accurately reflect the current market," White wrote.

In addition, White disclosed that $791,000 in "marketable securities" listed on Symington's financial statement "are held in an irrevocable family trust of which Symington is the beneficiary" and that the assets cannot be "liquidated or pledged."

The pension funds allege that First Interstate ignored its obligation to tell federal banking regulators that "Symington had engaged in acts that constituted known or suspected criminal violations" by submitting a false financial statement.

Despite White's disclosure of Symington's dismal financial condition, First Interstate continued to press the union pension funds to make the permanent Mercado loan without informing them of Symington's financial problems.

KEEP PHOENIX NEW TIMES FREE... Since we started Phoenix New Times, it has been defined as the free, independent voice of Phoenix, and we'd like to keep it that way. With local media under siege, it's more important than ever for us to rally support behind funding our local journalism. You can help by participating in our "I Support" program, allowing us to keep offering readers access to our incisive coverage of local news, food and culture with no paywalls.
John Dougherty
Contact: John Dougherty