Citicorp Set to Sue FDIC over Voiding of BNE Pact

Article excerpt

WASHINGTON -- Citicorp is planning to sue the FDIC for $30 million - the amount Citicorp claims it lost when the agency repudiated key terms of a 1990 credit card portfolio deal with Bank of New England.

Citicorp claims it lost that amount when the Federal Deposit Insurance Corp. Allowed Fleet/Norstar Financial Group, which bought the failed Bank of New England, to market credit cards to the customers Citicorp acquired.

Bank of New England had agreed to refrain from marketing to those customers for four years.

John L. Douglas, an attorney representing Citicorp, said last week that Citicorp decided to file the suit after nine months of negotiations with the FDIC ended without agreement.

Mr. Douglas and other observers said the outcome of the case will profoundly affect the ability of troubled banks to sell off credit card loans and other assets.

Based on Credit Card Portfolio

The legal flap stems from Citicorp's purchase of $652 million in credit card loans for a premium of $176 million. Bank of New England, desperately trying to raise capital to avert failure, agreed not market any new credit cards to its 590,000 former account holders for four years.

But when BNE failed in 1991 and the government sold its assets to Fleet/Norstar, the FDIC did not bar Fleet from marketing credit cards to BNE customers.

Citicorp demanded a $30 million refund from the FDIC. The New York banking company claimed the noncompete clause was worth $40 million, and it deducted $10 million because the first year of the four-year commitment was fulfilled.

Under a law passed in 1989, the FDIC can repudiate any contract when it takes over a failed bank or thrift, but it must pay damages if direct losses result to one of the parties.

In a Jan. 3 letter, FDIC liquidation specialist James A. Whipple told Citicorp that it "has failed to prove that it has suffered any actual direct compensatory damages as a direct and proximate result" of the FDIC's cancellation of the deal Citicorp made with BNE. The agency refused to pay a dime.

"We paid for something, they took it away, and in essence they sold it again to Fleet/Norstar," according to Mr. …