Now that dissident shareholders have apparently won control of Baltimore Bancorp, they may find it difficult to either sell the holding company or significantly improve its earnings, according a banking consultant.
"They might be stuck running it rather than selling it," said Arnold G. Danielson, a banking consultant in Rockville. If they end up running it, the new directors might find themselves restricted by the bank's history as a mutual savings bank, he said.
A group of 16 dissident shareholders, led by Baltimore Blast owner Edwin F. Hale Sr., apparently won a proxy fight for control of the state's fifth largest banking operation, the parent of the Bank of Baltimore.
A preliminary count released yesterday shows that shareholders voted 5.3 million shares to 5 million shares for Hale's plan to enlarge Baltimore Bancorp's board of directors. However, bank management did not concede defeat and said it will carefully review the tally, which was supplied by Corporation Trust Co.
"These numbers are preliminary and significant changes are not unusual," Robert F. Comstock, the chairman and chief executive officer of Baltimore Bancorp, said in a prepared statement. "It must be recalled that a larger margin than this one was reversed after a preliminary count was released after the last election," he said.
Hale, who also owns trucking and barging companies, started his takeover attempt in March. But, despite preliminary victories in May, the effort was tied up in court during the summer and a court ordered a new election.
Hale said opponents had accused him of "ulterior motives" in his campaign for the bank. "But history will tell that I'm a true &L believer in what I'm doing," he said. "It may sound corny, but so what. Davy Crockett said, 'When you are sure you're right, go ahead.'"
Under the group's management plan, Hale would be chairman and Charles H. "Buck" Whittum Jr., a former executive for Signet Bank, would be the chief executive officer.
If upheld, the vote will enlarge the board from 18 to 28 positions, and the 10 additional seats will be filled by Hale supporters who ran unopposed for the prospective seats in May. With the six seats already held by the Hale group, the dissidents will have 16 of the 28 board positions.
Danielson said he was heartened by the takeover because of past actions that he called poor management decisions. He cited the company's purchase of a thrift operation in the Washington area and the rejection of lucrative buyout offer last year. But at the same time he was doubtful the prospective new management will be able to do much better.
Danielson said interest in acquiring banks the size of Baltimore Bancorp in this region has pretty much evaporated. Efforts to improve earnings will depend on further reduction of expenses, which are already low, he said.
Part of the problem with improving earnings is the bank's legacy as a thrift institution before it converted to a commercial bank in the mid-1980s. As a mutual savings bank, it was heavily dependent on home mortgages. "There's nothing really wrong with it, it just happens to be a thrift," Danielson said.
However, if the Hale group is able to keep the bank on an even keel for the next few years, the market for bank acquisitions will probably improve, he said.
During the proxy fight, the Hale group hammered away at the supposedly poor performance of the bank. However, in their proxy material, the dissidents left a loophole for themselves, saying they have not seen non-public information. "There is a risk that, even if the Shareholder Representatives [the Hale group] constitute a majority of the board, the performance of Baltimore Bancorp will not improve," the dissidents' proxy statement said.
In another part of the proxy statement, the group said the new management would cut costs, begin a different marketing strategy to better use the bank's network of 51 branches, and increase the number of regular deposits, instead of relying on brokered accounts.
Hale said there will be no mass firings. But he had previously said he would take steps to remove the remaining 11 directors on the board who had backed management.
"I've gained control of a bank without owning a lot of stock," Hale said yesterday. "As I understand it, it's the first time in history that that has been done. I'm really proud of that, and I hope to do right by all the shareholders," he said.
According to proxy material, Hale owned only 36,175 shares of a total of 12.8 million outstanding shares of Baltimore Bancorp.
The key to Hale's strategy was to enlist the support of the 40 institutional investors who control about 35 percent of Baltimore Bancorp's stock. These investors had been unhappy with Baltimore Bancorp management since last year when it rejected a $217 million acquisition offer from First Maryland Bancorp, the parent of First National Bank of Maryland.
The largest institutional investor was the Baltimore mutual funds company T. Rowe Price Associates, which held 9 percent of Baltimore Bancorp's stock and sided with the dissidents, according to the Hale group.
"We're pleased that this proxy fight has finally been resolved and we hope the transition to the new board will be done expeditiously," said Steve E. Norwitz, a spokesman for Price.