Tapped Out

A Knoxville bank goes under

Tennessee Banking Magnate Jake Butcher, 46, used to boast that he rose from rural poverty to wealth and political influence the honest way, by borrowing money. Trouble was, as chief executive of the five banks in his United American Group, Butcher liked to lend money too, and too freely. Among the favored borrowers: Democratic politicians and the bank's directors and their relatives.

Last Monday, State Banking Commissioner William Adams shut down Butcher's flagship, the United American Bank of Knoxville, citing "large and un usual loan losses" at the $760 million institution. It was the fourth largest U.S. commercial bank failure since the 1930s. By the time U.A.B. opened again on Tuesday morning, it had been taken over by the state's largest bank holding company, First Tennessee National Corp. (assets: $4.2 billion).

U.A.B. had been on the "problem list" of the Federal Deposit Insurance Corporation throughout 1982. In November more than 200 federal bank examiners swept into all five of Butcher's banks, as well as 24 smaller banks controlled by his brother C.H. Says Stephen Woodrough, the FDIC regional counsel in Atlanta: "We wanted to see how much bad paper was really there. The situation at U.A.B. was very, very grave indeed." The FDIC concluded that $90 million in loans should be written off.

When U.A.B. announced in January that its 1982 losses were only $2.3 million, FDIC officials demanded that the bank issue a new report showing higher losses; U.A.B. 's board refused. Last week Adams determined from his own audit that the bank was in solvent. On its last day of business, between $17 million and $25 million in deposits were withdrawn in a run on the U.A.B. (The other 28 banks controlled by the brothers were judged to be solvent. Nevertheless, worried customers have with drawn several million dollars from C.H.'s Southern Industrial Banking Corp.)

Thanks to the acquisition, U.A.B.'s 135,000 depositors will not lose a penny. First Tennessee will also absorb up to $86.5 million in uncollectible U.A.B. loans. Any more than that will be covered by the FDIC, which believes the total may reach $160 million. The biggest loser is Jake Butcher; he owned $15 million in U.A.B. stock that is now worthless. The flamboyant entrepreneur, who five years ago was Tennessee's Democratic candidate for Governor, and who was the driving force behind last year's Knoxville World's Fair, has clearly lost more than a bank. This file is automatically generated by a robot program, so viewer discretion is required.