In an effort to raise money to comply with the requirements of intense federal supervision, Baltimore's 1st Mariner Bank said Tuesday it sold 95 percent of its consumer finance unit to a private equity firm for $10.5 million.
The sale was the bank's "first and major step" in increasing its capital, Chairman and CEO Edwin F. Hale Sr. said in a statement. But the sale's proceeds are only about half of what the company has said it needs between now and July to meet targets established by regulators.
Last month, federal and state regulators ordered the bank to improve its capital and deal with problem loans. The "cease-and-desist" order sets deadlines and benchmarks on capital levels for the bank, which had been struggling to raise cash.
The bank, which is Baltimore's largest independent bank, must have a "Tier 1" leverage capital ratio of at least 7.5 percent and a total risk capital ratio of at least 11 percent by June 30, 2010.
The bank had a Tier 1 leverage capital ratio of 5.77 percent and a total risk capital ratio of 8.7 percent as of June 30, according to regulatory filings.
1st Mariner shares rose 4 cents to close at $1.26 Tuesday.
"The sale of Mariner Finance is one part of our comprehensive strategy to narrow our focus on 1st Mariner Bank's enormous opportunities as Baltimore's largest independent bank," Hale said, noting that the deal brings the bank's risk capital ratio close to 10 percent. The bank continues to pursue other ways to raise money through public and private markets, as well as balance sheet management, he added.
Anthony Polini, an analyst at Raymond James & Associates in New York, said the key for 1st Mariner will be whether it can reduce problem loans and improve credit quality, even as losses are expected for the next two or three quarters.
"If you have a couple of quarters where credit quality is starting to move into the right direction, it may be easier to raise money," he said, noting that he expects to see improvements. "It certainly buys them another two or three quarters without any regulatory intervention, so to speak."
Polini said the bank could consider several options to raise cash, including a private placement capital offering or turning to its insiders for money.
