'If' key word in 1st Mariner's future

March 14, 2009|By JAY HANCOCK

Give First Mariner Bancorp's Edwin F. Hale Sr. credit for at least having his heart in the right place. He may be the only banker in America talking about bailing out his institution with his own money.

"I want this to work because I think it's a good investment," he said of the struggling bank he founded in 1995. "I think our stock right now - 50, 80 cents - is ridiculous. I think this is a great opportunity for us to move forward. And I'm going to put my money where my mouth is."

But not yet. "Dominoes have to drop" before he can come up with the funds, he says.

That's the story not only of his promised investment but also of other potential First Mariner rescues and, indeed, much of the U.S. economy. At stake is the future of Baltimore's biggest remaining banking company and Hale's influence over Canton redevelopment and other projects.

Hale can't invest in First Mariner until he raises money from his real estate ventures, which, in the worst economy in decades, is very uncertain.

The slump also hinders First Mariner's efforts to raise badly needed capital through selling its small-loan, consumer finance business. Who wants to buy a consumer finance company now?

First Mariner can't even get the federal bailout until it resolves nasty allegations that its Northern Virginia operation overcharged about 100 minority borrowers for mortgages in 2006 and 2007. Those incidents haven't been previously reported.

According to Hale, the bank is in talks with the Federal Deposit Insurance Corp. to settle the issue, which he blames on rogue Hispanic employees preying on Hispanic borrowers. The Treasury Department won't give First Mariner its requested bailout until it resolves the matter, Hale said.

Spokesmen for the FDIC and Treasury declined to comment. First Mariner has set aside $800,000 to pay a potential penalty.

That's the last thing it needs. Founded as a locally based alternative to out-of-town banks, First Mariner has lost $25 million in the past two years (mainly on bad mortgages), burned through much of its capital and been placed under an informal supervisory agreement with regulators.

Customers are fine. Deposits are insured up to $250,000 per account. The bank's capital - the shareholder stake that provides a gauge of viability - is below optimal levels but not in Davy Jones' Locker.

But the economy continues to deteriorate, more losses are likely, and Hale badly needs to add to the cushion. Closing at 60 cents a share yesterday, First Mariner's stock price is Wall Street's way of saying the bank won't survive in its present form.

Hale's ability to bail out his own bank is limited. His stake in First Mariner has fallen from $20 million to less than $1 million. A real estate company connected to his Canton Crossing development has been sued over an unpaid, $10 million loan. ("We're close to working that out," he said.)

Beginning construction on a related shopping center, the District at Canton Crossing, with its planned Target and Harris Teeter stores, would generate cash that Hale could put into First Mariner, he said. He may also sell land he owns, he added.

That could take time, if it even happens. (Commercial real estate finance hasn't gotten the same kind of government support as consumer lending.) But Hale hopes the bank will have commitments for at least one other infusion by the end of the month. Third-party private investors are considering putting in money, he said. There are "five or six" other companies that want to buy Mariner Finance, the consumer finance unit, he said. (Analysts say that could raise about $20 million.)

The bailout from the government's Troubled Asset Relief Program would produce $32 million.

"If they got the TARP money, there'd be no problem," says Anthony J. Polini, who follows banks for Raymond James & Associates in New York. Even without new capital, he says, "I would think they could make it through the year, and with help from the economy they could survive."

Help from the economy is unlikely. Soaring unemployment will almost certainly put new loans under pressure.

Allegations of overcharging minorities are a blot on First Mariner's reputation and another kick in the stomach from its Northern Virginia office, which closed in 2007 and was the source of most of its mortgage losses. The bank says it fired the responsible employees immediately after management learned of the abuse in 2007.

Hispanic borrowers paid average excess fees of $3,500 apiece, according to First Mariner President Joseph Cicero. Hale defends the bank's record of serving Hispanics and blacks, saying, "We're the biggest lender to minorities in this area."

Like other bankers, he points to a big jump in operating profit driven by a low cost of funds and, in First Mariner's case, fees from hundreds of millions in refinanced mortgages being sold to other investors.

"We've had 30 months of this," he says of the losses. "I'm 62, and I've never worked so much in my life as I am now. I'm not being naive about this. It's going to be tough. But I think we have a shot to start earning our way out of this."

That shot could look a lot better if First Mariner scores some extra capital from Hale, the Treasury or anybody else.

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