Hale needs to stem 1st Mariner losses soon

November 02, 2010|By Jay Hancock

Alessandro Vitale, whose family runs Aldo's restaurant in Little Italy, bought stock in Ed Hale's 1st Mariner Bancorp when it was $17. He bought it when it was $10. He bought more shares last summer when it was $1, and he says he's happy to own it today at 70 cents.

Vitale likes that 1st Mariner Bank is lending and invested. "Ed could just sit back like these other banks and say, 'We're not going to lend,'" he says, adding, "I just like the fact that Ed and the people involved in the bank — they're also shareholders. And they've lost a ton of money, so they have every incentive to bring the stock back up to 10, 12, 18 bucks a share."

If incentives were penthouses, Edwin S. Hale Sr. would still be living in luxury at the top of 1st Mariner's signature headquarters.

But they aren't. 1st Mariner Tower was threatened with foreclosure last year and sold. Hale, the bank's founder, chairman and CEO, vacated the bachelor lair. (The tower was owned by one of his property ventures.)

1st Mariner continues to lose money. All the incentives in the world won't make borrowers repay loans if they keep losing jobs, tenants, customers or whatever else generates revenue.

1st Mariner needs an economic turnaround, like everybody else, and it needs it a little more desperately than most. If the bank loses another $4 million this quarter as it did for the third quarter, in results announced last week, hope will be difficult to kindle.

The only silver lining from the miserable economy is that regulators are so busy shutting down banks in much worse shape than 1st Mariner that it might buy Hale some time.

He's on the road again trying to raise money to shore up the bank's finances. This is the story of his life recently. When the loan-loss holes in the balance sheet get too big, you need investors to fill them in. Otherwise the friendly employees at the Federal Deposit Insurance Corp. are liable to take the keys and change the nameplate.

Hale, who's not speaking publicly because of a regulatory "quiet period" for public companies raising money, is personally soliciting financiers across the country.

Perhaps this is because he's that kind of guy, the trucker from Highlandtown unafraid to stick his hands in the crankcase. Perhaps it's because the investment bankers who might ordinarily have done this were washing their hair.

"He wouldn't be trying to raise capital if he wasn't under some regulatory pressure to do it," says Bert Ely, a well-known banking consultant based in Alexandria, Va. "And the fact that he has not been able to do it suggests at some point in time he's going to have some problems with the regulators."

Hale has raised capital — just not enough. Worse, almost every time capital comes in, another load gets hauled away and dumped at the Great Recession landfill.

Last year 1st Mariner sold its consumer-finance arm, generating a badly needed $14 million. This spring it made a secondary offering of common stock at $1.15 a share, much of it to locals like Vitale who wanted to support a Baltimore-based bank.

"I have a lot of faith that 1st Mariner will survive, and I think it's in the best interest of Maryland that it does," said Leigh Brent, chief of Baltimore insurer Maury Donnelly & Parr and another subscriber to this year's stock offering.

That offering raised almost $11 million. Hale himself put another $2 million into the company.

But the bank had to write off $6.6 million in loans in its most recent quarter and added $9.8 million to its reserves to cover bad loans.

1st Mariner's initial problems had to do with less-than-prime residential mortgages it originated in Northern Virginia during the housing bubble. Since then, it has seen increasing defaults in commercial loans. As of June 30, commercial mortgages accounted for the largest category of loans that were at least three months' overdue.

The good news: The level of all delinquent loans has fallen sharply. Loans that were at least one month late but less than three months late on Sept. 30 totaled $21 million — a 43 percent decline from the level of Sept. 30, 2009, and the lowest in four years, the bank said last week. Delinquencies of 90 days or more are down 75 percent compared with the same period last year, to $5 million.

Former SunTrust executive Daniel E. McKew brings welcome commercial-lending savvy as 1st Mariner's new president. He joined the bank last month.

And like many banks, 1st Mariner is earning millions in fees as ultra-low interest rates prompt homeowners to refinance.

But they weren't enough to keep Hale from booking a $4.6 million loss for the third quarter. This can't continue. The remainder of this year is critical for Hale, 1st Mariner and all his investors.

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