On the eve of the 1988 NCAA basketball tournament, there was a festive gathering in a private club on the 56th floor of the First Chicago Center, the swept-sided headquarters of Chicago`s largest bank.
An air of jovial competition prevailed as First Chicago bankers strolled among the Mid-Day Club`s wood-paneled partitions, sipping beer and wine and nibbling on finger food as they looked over display panels depicting each of the tournament`s top 32 teams.
Even those who cared little for sports were trading banter on the coming management basketball pool, in which they would bid against each other to place bets on the colleges of their choice.
The brightest minds in the trading department had phoned ahead for the rules of the complicated betting system. Combining their money, they had visions of reaping big gains by applying the cold logic of international currency markets to basketball tournament seedings.
By the end of that February evening, 41 executives had bet just under $27,000 on the tournament, according to a tally sheet. The next year the pot would grow to $64,000.
No one realized it at the time, but the big winner of that first pool in 1988 would be a tall, trim former Georgetown University player. It was Barry F. Sullivan, then chairman of the First, who had outbid the group for the underrated University of Kansas.
The Jayhawks would go all the way, and Sullivan would win $6,657.50 from the bet.
Other wagers on Arizona and Purdue would bring his total a few dollars short of $10,000, according to an update circulated among participants. It is unclear whether he made the bet with someone else.
The championship game must have been a happy moment for Sullivan, a highly competitive man who one former senior bank executive said ”had to win every meeting, win every conversation.” Sullivan is a passionate sports fan who jumps up at Bulls games to shout at the referees.
But the NCAA pool, partially funded by First Chicago in apparent violation of federal banking law, has proved to be a major embarrassment for the $50 billion bank and for Sullivan, one of the nation`s leading bankers.
”If, indeed, this allegation is true, is it any wonder the average citizen is frustrated and angry . . . over the banking industry`s problems?” U.S. District Judge Ilana Rovner said when allegations about the pool were revealed in open court in December. The U.S. attorney is investigating the betting, a spokeswoman said.
The pool is just one of the problems that haunt Sullivan, 61, who took early retirement at the end of last year. It is one of several disclosures that suggest lax management oversight in his 10 1/2 years at the bank.
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More troubling than the NCAA pool were the escapades of Senior Vice President Jeffrey P. Tassani, the playful basketball pool emcee who that night goaded Sullivan to up the bidding for his alma mater. Tassani would later plead guilty in a multimillion-dollar kickback scheme involving bank contractors. Only recently has it been revealed that Sullivan had by May 1987 received an internal audit report pointing out suspicious dealings in Tassani`s administration department.
Former employees of the department-all of whom asked not to be identified-said little changed after that report. It was only 2 1/2 years later, in December 1989, that investigators discovered false invoices and began to unravel the fraud that sent Tassani to prison.
Sullivan`s frequent use of the corporate jet to make weekend trips to his New York home, at an estimated cost of $10,000 each, has also caused embarrassment. Instead of selling the jet as he once promised, the bank had by 1990 traded up to a 19-passenger Canadair Challenger. By the summer of 1991, the new jet must have seemed an extravagance to a First Chicago work force undergoing its deepest cuts ever.
Within weeks after Richard L. Thomas replaced Sullivan Jan. 1, the plane was put up for sale, for $14.95 million.
The basketball pool appears not only to have violated gambling laws, but also a specific federal statute that prohibits nationally chartered banks from association with gambling of any kind. Banks may not ”deal in bets” or
”announce, advertise or publicize the existence of” games of chance, according to a provision in the National Bank Act.
Bank funds had been used to pay for commercial artwork for the pool, and Sullivan had directed Tassani and an assistant to spend more than a week of work time organizing it, according to statements Tassani gave to federal investigators.
The second year, the affair was billed as a charity auction, but several participants said they were not aware of any proceeds directed toward a charity. Nevertheless, at least a few players wrote the word ”charity” on their wager checks, according to a former bank employee who saw the checks. A bank spokeswoman would not answer questions about whether there was a charitable beneficiary.
The resulting publicity marred Sullivan`s last months at First Chicago and has added controversy to his possible appointment to a high post in the administration of New York Mayor David Dinkins.
Sullivan, reportedly the leading candidate to be deputy mayor for economic development, would not answer questions for this story. However, in a meeting with bank officers, he called Tassani`s kickback scheme ”a gnat on an elephant`s ass,” according to someone present.
A bank spokeswoman said First Chicago is cooperating with the federal investigation. Sources close to the bank said the company has now been reimbursed for its NCAA pool expenses, but the sources would not say who had reimbursed the bank. The spokeswoman said use of the bank`s plane is audited yearly and ”has been found to be appropriate.” She would not answer specific questions.
The spokeswoman, Lisabeth Weiner, did say the ”lax practices” noted in the 1987 audit were thought to be ”errors in judgment,” and Tassani was
”reprimanded” and ”corrective actions were taken” in the administration department. ”There was no hard evidence” of ”illegal activities” until 1989, she said.
Directors and sources close to the First Chicago board said Sullivan`s departure was not related to Tassani or the basketball pool. Directors were chagrined to learn of the extent of the betting, however, said a source close to the board.
The board was more concerned with the way Sullivan managed the fortunes of the Midwest`s largest bank.
Sullivan had been dubbed ”accident-prone” by financial analysts who tracked the bank`s erratic earnings performance in the mid-1980s. Later on, the bank would lose big on loans to failed real estate projects, overleveraged buyouts, even an ill-conceived credit extended to Robert Maxwell, the British media baron who left his creditors at sea after his mysterious death last year.
There were many flashes of brilliance under Sullivan. For example, he recognized early on the enormous profit potential of credit cards. But while Sullivan steered the First clear of the banking industry`s worst troubles, the bank lagged other major banks in stock market performance during his tenure. In 1990, Sullivan received a salary of $735,632.
Once feared as a bank that would dominate the industry in the Midwest, the First has been challenged on its home turf by banks from Ohio and Michigan. First Chicago, as measured by assets, slipped from the country`s 9th-largest banking company to 12th in Sullivan`s tenure.
At a time when the margins in lending to large corporations had grown razor-thin, Sullivan resisted an aggressive shift toward the less glamorous business of banking to smaller businesses and consumers. A product of Chase Manhattan Bank and the New York financial community, Sullivan was accustomed to playing in banking`s big leagues. In the councils of management, it was corporate finance that consumed his interest.
Yet year after year, First`s large and grandly named ”global corporate bank” generated paltry returns as it locked horns with the titans of finance. Profits were coming from the smaller consumer business. For some time, a group of the bank`s directors were pressing Sullivan to act on the difference, said sources close to the board.
So, said one of the sources, at least a few of the directors seemed
”happy to see him go.”
The general downturn in banking increased the financial strain on the First. Managers` bonuses fell, employees lost the free lunches they had been served since 1913, and staff cuts culminated in a 1,000-employee purge in mid- 1991. Most of the layoffs were in the corporate bank. It all added to the friction created by Sullivan`s personal style, said several executives.
Personality problems were hardly what bank directors expected in 1980 when they brought Sullivan in to replace A. Robert Abboud, who had been fired partly because of the turmoil his abrasive style created at the bank. Ben W. Heineman, the director in charge of the search to replace Abboud, said at the time that the board looked for someone ”firm, kind and nice.”
Initially, Sullivan seemed to fit the bill. Officers broke into an ovation when their new chairman took off his jacket and sat on the stage`s steps to deliver his first speech to them. He promised then to sell the corporate jet, said people who attended.
The bankers had read in the newspapers that Sullivan took time off to paint his house before he started the new job. ”I can`t afford the prices a painter asks,” he was quoted as saying.
But First Chicago maintained its jet. And upon arriving in Chicago, Sullivan brought British interior designer John Heath to the city to supervise renovations of his Lake Shore Drive apartment. The bank later, at Sullivan`s request, commissioned Heath to draw up plans for its ninth-floor executive offices, said several former bank employees.
”For Barry Sullivan, he was like a designer-in-residence,” said Joan Blutter, a Chicago designer who knew Heath while he was in the city.
Sullivan was a pleasing speaker in front of large groups, but would often be ill at ease in social situations, several present and former senior bank executives recalled. He would frequently pass by associates without a word. Employees who worked under him often use the words ”cold” and ”aloof” when asked to describe Sullivan.
The chairman suffered from comparisons with his No. 2 man, then-President Richard Thomas, who was given to greeting employees and shaking their hands.
In a bank that remains Midwestern at heart, Sullivan was viewed as a New Yorker, the more so because his family remained in Bronxville, N.Y. Said one senior executive: ”One of my bosses used to say . . . `He`s not dyed-in-the- wool us.` ”
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Sullivan`s frequent trips back East reinforced that view. Still, he played a key role in forging a link between Mayor Harold Washington and the Loop business community. He was a leader in efforts to improve the finances of the Catholic Archdiocese of Chicago and reform the city`s public schools.
If at times it added up to a noticeable lack of team spirit at the bank, the outgoing Tassani was one senior executive who seemed unquestionably on board, insiders said.
Yet events would prove that Tassani was all the while looking out for himself, acquiring the trappings of success.
Tassani owned a $575,000 home in Park Ridge and another worth at least $175,000. He drove a Mercedes-Benz and was launching a bingo parlor in the Dominican Republic with one of his underlings, Robert Olson.
It was apparent to many in the administration department that Olson was also enjoying the good life. He was living in a $400,000 Lisle home and driving a red Ferrari.
Even after the skeptical audit became widely known in Tassani`s department, Tassani pressed ahead with a nearly $100,000 addition to his home, employing some of the same contractors he did business with for the bank. Bennett Alban, a lawyer whose unusually favorable lease of bank office space had attracted the criticism of the auditors, was handling Olson`s real estate deals.
Tassani, Olson and Alban would plead guilty in 1991 to federal bank fraud charges.
Associates of Sullivan said he seemed genuinely shocked and felt betrayed when he learned of Tassani`s transgressions. Tassani had been for a time Sullivan`s personal aide, and they shared a devotion to basketball. Tassani had a close relationship with De Paul University`s Blue Demons, helping players land summer jobs with the bank or its contractors. He helped organize an annual First Chicago banquet for the team.
The Tassani affair, the NCAA pool and the other questions raised about Sullivan`s management seem to have had little impact on Sullivan`s chances for the post in Dinkins` administration.
”My impression is that Mayor Dinkins has looked into it and is satisfied there is nothing that in any way would make it impossible for him (to appoint Sullivan),” said David Rockefeller, former chairman of Chase Manhattan Bank and a financial adviser to Dinkins.