Start of discussions could lead to exit of Mercantile's Baldwin

Talks begin amid reports of generation rift at bank

February 20, 2003|By Robert Little, Bill Atkinson and William Patalon III | Robert Little, Bill Atkinson and William Patalon III,SUN STAFF

Executives at Mercantile Bankshares Corp. have begun discussions that could lead to the departure of venerated banking Chairman H. Furlong Baldwin, amid reports of a growing philosophical divide between the bank's older and younger generations of leadership.

Sources inside and outside the bank said a "process" has begun that could lead to the exit of Baldwin, the respected Baltimore banking executive and community patron who built Mercantile into an $8.9 billion regional power. The sources offered no time frame, and bank officials declined to comment.

In an interview yesterday, Baldwin, 71, acknowledged discussions about his departure as chairman of Mercantile's board of directors, though he called the talks tentative.

He denied that a rift exists between him and Edward J. "Ned" Kelly III, the Mercantile chief executive and president whom Baldwin installed as his successor in 2001.

"I was going ... anyway after a certain period of time," said Baldwin, who was vacationing in the West Indies. "I have been a nonexecutive chairman for two years. I am retired. I have a consulting fee. I have no authority. I don't know what to tell you."

At the bank's last annual meeting, on April 24, Baldwin was elected to serve a three-year term as a bank director. The term would expire at the bank's annual stockholders meeting in 2005.

When Kelly was hired, Baldwin said he would remain chairman for at least three years, until February 2004.

But several sources inside and outside the bank said a chasm has emerged between Mercantile executives loyal to Kelly and the Baldwin contemporaries who make up the bank's old guard - some of whom are being dismissed or laid off as Mercantile pares down and refocuses.

Other sources said that Baldwin's departure is imminent, though some suggested it will result less from a "force-out" than from a logical succession plan put in place when Kelly joined Mercantile.

Sources said that Kelly established certain goals when he joined Mercantile in 2001, and that the achievement of those goals has rendered Baldwin "less relevant to [Mercantile's] future," according to one source.

"During the next couple of weeks, decisions will be made," a Mercantile executive said.

The bank issued a statement last night saying, "Representatives of the bank declined to comment."

Sources close to the bank describe two different situations. One group paints a picture of respectfulness and collegiality between Baldwin and Kelly, while others suggest a clash of cultures.

Many bank veterans remain loyal to Baldwin, some said, creating a situation in which the chairman has maintained an influence over business decisions.

This disparity has led to a dispute over the timing and characterization of Baldwin's departure from the company. A source inside the bank said the talks about when Baldwin would leave were "part of succession-planning," which would lead to Kelly's adding the chairmanship to his duties.

Baldwin's departure from Mercantile would mark the final exit of an executive who is regarded as dean of Baltimore's once-formidable banking community.

Net income at Mercantile, the largest independent bank in Maryland, grew every year from the time that Baldwin became chief executive officer in 1976 until his retirement in 2001 - from $9 million to $175 million. Total cash dividends paid per share increased for 24 consecutive years, and the company's stock price grew from $1.36 per share in 1976 to a high of $44.69 in late 2000.

When Baldwin stepped down, Mercantile ranked as the 54th-largest banking company in the country with $8.9 billion in assets, according to SNL Securities LC, a financial research and publishing firm in Charlottesville, Va.

He also raised money for the Baltimore Symphony Orchestra, the Walters Art Museum and Johns Hopkins Medicine. He was chairman of John Hopkins Medicine's board of trustees from 1989 to 1994.

Kelly has been working to remake the bank and has imported a number of outside executives - especially in the wealth-management area, which he has identified as the vehicle for profit growth.

Executives inside Mercantile said the new directions have rankled some of the bank's veteran employees. At least one executive, who is no longer with the bank, bypassed Kelly to complain to Baldwin about the bank's new leadership, a source at Mercantile said.

"In many respects, people view `Baldy' as still running the bank," that source said of Baldwin. "A lot of things that Ned was trying to do ... if [employees] didn't want to do it, they went to Baldy."

The source said change has frightened Mercantile's older generation of leadership.

"It is tough to get anything moving because they don't want to do anything different than they have done in the last 100 years," the source said. "Change is really scary to them. Now, if they don't change, it is going to seriously hurt their long-term viability."

Baldwin said that when he hired Kelly, the two had an understanding that Baldwin would not remain at the bank for long. He and Kelly discuss his retirement "on a regular basis," Baldwin said.

"I am ready to do other things, not that I had any real role there. I couldn't make a loan, I couldn't sign an expense check," Baldwin said.

He added that he has been "very satisfied" with Mercantile's performance under Kelly. "Our earnings are up in a very tough environment," he said.

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