452. Memorandum From Albert H. Gerberich of the Office of South American Affairs to the Director of the Office (Bernbaum)1
SUBJECT
- Banco Popular and its Difficulties with U.S. Banks
On Tuesday, April 24, Mr. Corliss2 and I had lunch with Mr. Francis. Scafuro, Vice President of Bank of America, and Mr. Henry Grady of the same institution. Mr. Scafuro told us he is flying to Bogotá on Thursday and will discuss with the Minister of Finance, with the Chief of the Office of Exchange Control,3 with Luis Morales Gomez (President of the Banco Popular), and probably with President Rojas himself the debts owed to eight U.S. banks by the Banco Popular. He said he is very much disappointed with Morales’ actions, and is definitely of the opinion that there is bad faith in his dealings.
He said that the eight banks were recently paid a total of some $700,000 on account, but these payments were insufficient, were not allotted in proportion to the amount of the balance due each bank, and were made in such a manner that it was impossible to ascertain just what items were being paid off. The Bank of America also knows that exchange was obtained from the Office of Exchange Control to make additional remittances but was not used by the Banco Popular for the purpose. At one time, Scafuro says, the entire indebtedness to the Bank of America was authorized, but Morales never made payment.
The total amount owed the eight U.S. banks is still well in excess of $4,000,000, U.S.C. Over $3,000,000 is still owing the two largest creditors. During the past month Bank of America received a remittance of $250,000 and Banco Popular still owes it about $920,000. It has examined the balance sheet of the Banco Popular and cannot make head or tail of it. An arrangement had been agreed upon whereby Banco Popular was to remit it $100,000 monthly, but this has not been followed. Morales Gomez was recently in New York and gave a big party while he was there, carefully excluding all representatives of Irving Trust Company and Bank of America. He has now set up between 55 and 60 branches of the Banco Popular in [Page 917] half a dozen countries and has evidently over-extended himself. The big question in the Bank of America’s mind is whether the Banco Popular is solvent.
Mr. Scafuro also referred to the drop of the peso to the neighborhood of 4.80 to the dollar last week-end and said he would not be surprised if Finance Minister Villaveces would have to swallow his words and consent to devaluation very shortly, perhaps even this week.
He said he expected to call on Ambassador Bonsal and Acting Commercial Counselor Hammond while he is in Bogotá and keep them fully informed of his activities.
On Wednesday morning, April 25, Mr. August Maffry, of the Irving Trust Company,4 called at my office and left with me a letter from the Vice President of his firm, Mr. Michael Sieniawski, which he asked me to send by pouch to Ambassador Bonsal. He also asked me to make an appointment for him to talk with Ambassador Bonsal when the latter gets here, saying it is known in New York that he will be coming up on May 5. I glanced through the letter and noticed that it concluded by asking the Ambassador if he could use his good offices in correcting the situation. I told Mr. Maffry that we could promise him lots of sympathy but I did not see how we could promise any formal intervention at this stage. Mr. Maffry made no comment, but shrugged his shoulders.
He told me he had had a conversation with Albert Waterston of the International Bank, and that Mr. Waterston was very pessimistic about the Banco Popular case and believes it will hurt the good name of Colombia and may affect Colombia’s chances of getting all the credits it desires this year.
I happened to speak with Mr. Russell Lutz of W.R. Grace & Co. later this morning and asked him if he was au courant regarding the status of the dispute between the Grace Bank and the Banco Popular. He said he was not, but would be shortly talking to New York. I asked him if he would let me know the amount owing the Grace Bank if it is not confidential, as I already know the amount owing the other banks.
This afternoon Mr. Lutz gave me the interesting information that one month ago the Banco Popular owed the Grace Line [Bank?] half a million dollars or a trifle more, but recently one of its Vice Presidents made a trip to Colombia and came back with $250,000, reducing their debt approximately by half. Mr. Lutz added that the [Page 918] Grace Bank is not interested in having the State Department get into the picture on its behalf, if we are contemplating any such action. He said it is true that it has been working conjointly with the other seven creditors in keeping each other informed on what is happening and coordinating their efforts to effect payment, but his company does not want any pressure brought by the U.S. Government at this time, and the President of Grace Bank told the Irving Trust Company representatives exactly that two days ago. He says his firm is well aware that Morales Gomez is very close to President Rojas and that Rojas and the Government have an interest in the Banco Popular, and it is believed the difficulties can be ironed out without using straight-arm methods.
On Wednesday afternoon Mr. Scafuro phoned me again to tell me all his arrangements have been made and he would be off in the morning. He said Ambassador Urrutia has injected himself into the proceedings, had discussed the Banco Popular with Waterston, and had called Finance Minister Villaveces suggesting a meeting of the latter, President Rojas and the head of the Banco de la Republica with Scafuro if it can be arranged. In the meantime Scafuro had talked with Martin del Corral, President of the Bank of Bogotá, an old friend who advised him to see Villaveces first of all and get his advice when he arrives in Bogotá; del Corral later made an appointment for him to see Villaveces at 9:00 A.M. on Saturday, April 28. Scafuro then got in touch with Waterston, who advised him to see the President in any case. He agrees with Maffry that Waterston is quite upset about the Banco Popular’s handling of its debt problem.
Mr. Scafuro has heard that dozens of army officers are said to be indebted to Morales Gomez’ bank, and for this reason he fears the President will be fearful of taking any strong action—Morales may have too much support in the armed forces. For this reason he is a little hesitant about going to the President in the matter.
Scafuro also told me that the Consulate General in New York wrote in ink alongside his visa the words “Always on the understanding that passport is valid”, something that was not done last year when he went to Colombia. I asked Mr. Castello5 of the Colombian Embassy about this, and he said it is nonsense, and he is going to inquire into the reason for such an inscription. In the meantime he told me to tell Scafuro to proceed to Colombia at the Colombian Embassy’s risk, and get in touch with it if he should have any trouble on landing at Bogotá.
I have collected the following figures (approximate) on the total amount still owed by the Banco Popular to U.S. banks: [Page 919]
| Irving Trust Company | $1,328,000 |
| Bank of America | 920,0006 |
| Marine Midland | 450,0007 |
| Colonial | 450,000 |
| Schroeder | 375,000 |
| Grace | 250,000 |
| Philadelphia National | 250,000 |
| A Miami bank | 130,000 |
| Total | $4,253,000 |
- Source: Department of State, Central Files, 821.14/4–2656. Confidential. Also addressed to Bainbridge C. Davis and William Belton.↩
- James C. Corliss, adviser and alternate to the U.S. Representative to the Inter-American Economic and Social Council of the United Nations (IA–ECOSOC).↩
- Enrique Gamboa.↩
- In a memorandum of conversation dated March 2, Gerberich reported that Maffry, a Vice President of Irving Trust, had stated that relations between the Banco Popular of Colombia and Irving Trust had deteriorated to the point that all business transactions between the two banks has ceased. (Department of State, Central Files, 821.14/3–256)↩
- Edmundo Castello Nieto, First Secretary of the Colombian Embassy.↩
- This includes original principal of $845,000 plus interest and some smaller items. [Footnote in the source text.]↩
- The indebtedness to the Marine Midland Bank is “substantial”; I do not think this figure is too high. [Footnote in the source text.]↩