2 Banks Sue Each Other over Pension Fund's $1 Million Loss: First Kentucky Charges Wachovia Mishandled BellSouth Investment Funds; Wachovia Says Its Was the Other Way Around

By Adams, Jerry | American Banker, September 27, 1985 | Go to article overview

2 Banks Sue Each Other over Pension Fund's $1 Million Loss: First Kentucky Charges Wachovia Mishandled BellSouth Investment Funds; Wachovia Says Its Was the Other Way Around


Adams, Jerry, American Banker


GREENSBORO, N.C. -- Two banking companies, one in Kentucky and the other in North Carolina, are suing each other in a conflict over which one caused a pension fund to miss a chance at more than $1 million in investment earnings.

First Kentucky Co., the investment advisor subsidiary of the First Kentucky National Corp., Louisville, filed suit July 22 against the trust department of Wachovia Bank and Trust Co., Winston-Salem, N.C. Wachovia replied with its own suit on Sept 3.

Both suits are filed in federal district courts and are over the handling of the pension fund of BellSouth Corp., formerly part of the Bell System.

A source familiar with the case said that First Kentucky has had a long relationship with the telephone company and that the investment subsidiary still manages $475 million in BellSouth investments. Wachovia was named trustee of the BellSouth Pension Plan in early 1984, shortly after First Kentucky was named advisor.

New Fiduciary agreements were being worked out, the source said, as a result of the U.S. Justice Department suit that broke up the Bell System.

The First Kentucky suit alleged that Wachovia failed to carry out a stock transaction and thereby lost an opportunity to earn $1.2 million.

The suit also asks for commissions lost to First Kentucky Co., an amount to be determined at the trial. First Kentucky manages funds under a fee formula that pays $1 per $1,000 investment up to $100 million, 50 cents per $1,000 above that amount.

In its suit, Wachovia alleged that First Kentucky was responsible for the missed opportunity by calling for a stock purchase then hesitating and missing a deadline.

The time in question was in the spring of this year -- after First Kentucky and Wachovia had successfully worked together for a year and a half. They were linked to BellSouth in a three-way agreement in December 1983, according to both suits, and cooperated for a stock transaction in early August 1984.

Unocal Stock at Issue

At that time, First Kentucky ordered, and Wachovia made a purchase of 131,000 shares of Unocal Corp. stock at an average price of $38. The total purchase price was just over $5 million.

Then, last March, according to Wachovia's suit, First Kentucky ordered 65,000 shares sold at $50.02 per share for a total sale price, excluding commission, of $3,276,375. That was done.

That left the fund holding 65,500 shares when it appeared in May that Unocal was the subject of a tender offer by Mesa Petroleum Inc., driving up the price of Unocal stock. …

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