BEHIND THE NEWS: After taking blows, bank repairs relations with Lilly family

November 13, 2006

No bank wants to leave a customer steamed, especially when that customer is the mighty Lilly family.

Great news for National City Bank of Indiana: It's finally back on the family's good side.

Court papers filed in Marion Superior Court in recent months show the six nieces and nephews of heiress Ruth Lilly are increasingly satisfied with the bank's handling of her financial affairs.

Lilly, 91, is the sole surviving greatgrandchild of the pharmaceutical firm's founder. The bank, part of Clevelandbased National City Corp., serves as conservator of her estate, valued in 2002 at $1 billion. In a deposition that year, a National City official called the Lilly relationship the bank's biggest.

It remains a whopper of a client, even though in the intervening years the bank has disbursed millions of dollars to beneficiaries, following the terms of her estate plan. National City continues to oversee accounts and trusts containing hundreds of millions of dollars.

In a court filing last month, the nieces and nephews-represented by Eli "Ted" Lilly II of Carmel and George Lilly of Florida-wrote: "During the [six months] covered in this report, the communication, reporting, planning and overall investment performance by the conservator has substantially improved."

The family used similar language in a report in June and another in November 2005. That was a huge shift from a May 2005 report, in which Ted and George Lilly questioned the bank's investing and diversification strategies and said they were "extremely disappointed" with its performance.

In that filing, they wrote: "The family designees believe that the conservator is not adequately handling its responsibilities. ... The conservator has been particularly uncommunicative and unresponsive to the concerns raised by the family designees."

What had so irked the family, and how did the bank mend the relationship? The reports, filed in probate court, shed little light. And representatives of the bank and the family would not elaborate.

But papers filed in a separate lawsuit fill in some of the gaps. In that 3-yearold case, two big beneficiaries of Ruth Lilly's estate, Washington, D.C.-based Americans for the Arts, and Chicagobased Poetry Foundation, charge National City bungled management of her assets, costing them tens of millions of dollars.

At issue are two Ruth Lilly trusts funded in January 2002 with 3.8 million Eli Lilly and Co. shares worth $285 million. The charities say the bank failed to diversify the trusts until the second half of the year, when Lilly shares were slumping, resulting in a $102 million decline for 2002.

A Marion County judge in 2005 shot down the suit, and the Indiana Court of Appeals did the same last month. Attorneys for the charities could not be reached on whether they plan to appeal to the Indiana Supreme Court.

Depositions, e-mails and other records filed as part of that case make clear the nieces and nephews thought the charities' concerns were well-founded.

After Lilly announced in July 2002 that quarterly profit plunged 20 percent and that federal regulators were demanding 94 fixes at eight manufacturing plants, the company's shares fell 5 percent in a few hours.

In response, George Lilly fired off an angry e-mail to top bank officials: "I continue to insist that rational and prudent management strategies be put in place ... so that we do not once again find ourselves exposed like a jackass in a hailstorm."

The filings show the family and bank were on terse terms even before the diversification uproar.

In a February 2002 e-mail, one bank official wrote to another: "You will rue the day you ever decided to take on this account. ... George ... has a terrific bark but I am told he usually backs off."

Quayle hunting deals

Election Day came and went with nary a mention of Dan Quayle, the former vice president who once aspired to become commander in chief.

But that doesn't mean the Hoosier native, now 59, has slipped into early retirement.

As Forbes noted this month, since 2000 he's been non-executive chairman of Cerberus Capital Management, a New York-based hedge fund that's been on a growth tear.

"As a rainmaker" for Cerberus, the magazine said, "he has likely made tens of millions of dollars."
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