Provident files counter suit in Sterling merger battle

May 12, 1994|By David Conn | David Conn,Sun Staff Writer

As part of an unusual court battle launched two months ago by a spurned merger partner, Provident Bankshares Corp. filed a counter suit yesterday stating its reasons for backing out of a deal to buy Sterling Bancorp.

At least, that's what the filing appears to be.

Because in deference to banking regulators' concerns, many of the allegations contained in the lawsuit remained mere cryptic black lines, edited out -- or "redacted" -- under an agreement reached by the two banking companies not to divulge confidential information.

Although Baltimore Circuit Judge Thomas Ward has a full "unredacted" version, the public is left guessing what precisely Provident is saying in its claim that it had good reason to call off its merger with Sterling.

The cancellation of the merger led Sterling to sue Provident in March in Baltimore Circuit Court. Sterling's original lawsuit seeks more than $5 million and the completion of a merger originally announced in December, but called off by Provident in February.

Provident is seeking $5 million in punitive damages from Sterling and an undetermined amount of compensatory damages.

According to Sterling, Provident backed out of the proposed union after a rise in Provident's stock price increased the value of the deal to almost $11.5 million from the original $10 million. Sterling said it rejected Provident's offer of fewer shares.

But Provident, both in its response to the lawsuit last month and in yesterday's counterclaim, said the real reason it backed away from the merger was because of problems it discovered after examining Sterling's books. Sterling has about $70 million in assets and specializes in private banking, or serving mostly wealthy individuals.

"We determined that their business was not what we had been led to believe," said Provident Chairman Carl Stearn, in a statement issued when Sterling filed suit in March.

"Usually banks sue to avoid being acquired," he added. "The whole thing strikes me as a little strange."

Sterling President and Chief Executive Officer Arthur L. Silber yesterday called the allegations "utter nonsense."

He said Sterling's earnings and capital have been above industry averages in the past three years and that "if you were to see the entire bank examinations . . . you would come away with a very positive impression of Sterling."

Exactly what Provident discovered about Sterling's business is still a bit of a mystery. That's because Sterling, and later Maryland Bank Commissioner Margie Muller, objected to Provident's intention to file the results of state and federal regulatory examinations of Sterling in its lawsuit, making the confidential report public. Ms. Muller worried that both banks and regulators would feel constrained to be candid during an examination if they feared the public could see the results.

The Federal Reserve Bank of Richmond later joined Ms. Muller in objecting to the disclosures. Last week, despite a ruling in Provident's favor by Judge Ward, the two companies agreed to a compromise.

Provident would file its counterclaim, but black out the sections that detail what the regulators found. The resulting claim, which also names Mr. Silber, contains sentences such as, "Silber and Sterling knew, but did not disclose to Provident prior to Dec. 15, 1993, that state bank regulators had found in their 1993 examination that [deleted]."

"The counterclaim speaks for itself," said Provident attorney Gerard J. Gaeng, "but it would speak in a fuller voice if not for" the redacted sections.

It is unclear whether more details would become public if the case goes to trial. Sterling has 30 days to file a response to Provident's counterclaim.

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