Iran Hostages: How the Bankers Did It

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From three continents, the $12 billion deal that freed the hostages

A 5:15 a.m. last Tuesday, as the first rays of morning were beginning to light up midtown Manhattan, 25 tired, unshaven bankers in rumpled business suits stumbled wearily out of the Citicorp Center onto 53rd Street. "Whew," said one as he rubbed his eyes and ran his hands over the stubble on his face. "That's the most nerve-racking period I have ever spent." In cooperation with some 300 banks round the world, the moneymen had just completed the largest and most complex financial transaction in history. They had helped achieve an agreement that would lead to the freeing of the 52 American hostages in Iran.

Another predawn episode 14 months earlier had started the high-financial drama that concluded last week. On Nov. 14,1979, ten days after the Americans were taken prisoner, then Treasury Secretary G. William Miller was awakened in his Washington home at 5 a.m. by a call from a State Department duty officer, informing him that then Iranian Finance Minister Abolhassan Banisadr was threatening to withdraw all of his country's deposits from U.S. banks and place them in financial institutions in other countries. The Iranians were hoping that this move would drive down the value of the dollar.

Miller immediately notified President Carter, and the President ordered the U.S. Treasury to place a freeze on all Iranian assets held by the Federal Government or by U.S. banks and companies either at home or abroad. These assets ranged from 1.6 million oz. of gold stored in the vaults of the Federal Reserve Bank in New York City to a Boeing 747 that had not been de ivered to the Iranian government. The total amount of Iranian funds blocked by the U.S. came to an estimated $12 billion.

The Iranian funds immediately became the centerpiece of a financial thriller that might have been written by Paul Erdman, author of The Crash of 79. On the day after the American action, Bank Markazi, the central bank of Iran, instructed Chase Manhattan, the leading bank in a $500 million loan to the government of the Shah, to draw on Iranian assets at U.S. banks in London for payment of an interest installment of $4 million. Because the assets were frozen and payments could not be made on them, the loan became technically in default. Chase hastily polled the eleven other members of the lending syndicate and found the majority in favor of declaring Iran in default.

Chase's action set off a chain of legal moves by other banks to protect their outstanding loans by suing to attach Iranian property. Morgan Guaranty, for instance, obtained a lien on Iran's 25% interest in two of West Germany's best-known companies: Friedrich Krupp, a diversified steel and engineering combine; and Deutsche Babcock, a manufacturer of industrial equipment. Meanwhile, Bank Markazi sued in London courts to unfreeze $3.3 billion in Iranian assets held in five London branches of U.S. banks.