Edwin F. Hale Sr., chairman and CEO of 1st Mariner Bank. (Baltimore Sun photo by Amy…)
Edwin F. Hale Sr., the local businessman who built First Mariner Bancorp into a major regional player, but struggled in recent years to raise the money to meet regulators' capital requirements, will step down as chairman and chief executive officer under a deal with a New York investment firm announced Tuesday.
Priam Capital, headed by Baltimore native Howard Feinglass, will pump $36.4 million into the cash-strapped bank in return for an ownership stake of nearly 25 percent, First Mariner announced in a release. The deal is contingent on an additional $123.6 million of capital raised from other sources.
When it is complete, First Mariner said, it will offer $15 million in common stock to current shareholders at 50 cents per share, the same price to be paid by Priam.
Hale, reached Tuesday evening by The Baltimore Sun, declined to comment, citing regulatory constraints surrounding a stock offering.
In a statement he said, "Signing the agreement with Priam marks a significant milestone in our efforts to increase our regulatory capital levels and stockholders' equity."
Officials with Priam could not be reached for comment.
Feinglass, managing partner of Priam, said in a statement, "We see a unique opportunity to invest in 1st Mariner, which, following the recapitalization, will play an instrumental role in the ability of the Baltimore metropolitan area to continue to develop and prosper."
With $1.3 billion in assets, First Mariner is the largest independently owned bank in Baltimore. The company employs 700 workers at 24 branches and the 1st Mariner Tower in Canton.
When the deal is complete, Feinglass said, First Mariner will have one of the highest capital ratios of any Maryland bank.
If the transaction succeeds, it could bring financial stability to a homegrown bank whose finances have buckled under the strain of bad loans and whose capacity to continue operating has been questioned by auditors.
But some analysts questioned whether the deal could be achieved.
Ordinarily when such agreements are announced, most of the capital has already been raised, said banking consultant Bert Ely. He said he was "highly skeptical" that First Mariner would be able to raise the $123.6 million necessary to receive the infusion of capital from Priam.
"It's not clear why they would be able to now raise that money when they couldn't raise it before," Ely said. He said the bank still faces the same problem: convincing fresh investors that it is a good investment.
"The question is: Can this bank earn enough profit in the future to provide a good return on the $160 million that will be invested?" he said. "I am skeptical that it can."
Banking consultant Stuart Greenberg questioned the financial sense in investing in a bank with such high losses.
"I just don't understand the deal, because for the last at least three quarters, First Mariner has lost a substantial amount of money," he said. "And what I don't know is, has the bleeding stopped or not? First-quarter numbers have not been reported, which would give some idea."
Analysts said the requirement that Hale resign signals a lack of confidence in the businessman who grew the bank into Baltimore's largest but hasn't been able to solve its recent problems. Hale has been offered, and is considering maintaining, a seat on the new board until 2012.
Some said First Mariner would benefit from new management.
"That would be a positive for the company," Ely said. "Hale hasn't done a very good job of managing that bank. Fresh investors wouldn't want to bet money on him."
But Kathleen Murphy, president of the Maryland Bankers Association, said Hale deserves credit for trying to preserve a Baltimore bank.
"No one has worked more tirelessly than Ed Hale to maintain the local roots of First Mariner Bank, the institution that he built. He and his board of directors have explored every avenue possible to raise capital and to remain independent," Murphy said. "What we are hearing today is very encouraging for their shareholders, for their customers and for their community."
First Mariner lost $46.6 million last year and $22.3 million the year before. Hale said recently that the company was taking every path available to get the bank on proper capital footing.
Federal and state regulators placed First Mariner under more intense supervision in September 2009, requiring the bank to raise its capital levels and deal with problem loans, among other actions.
Hale undertook several fundraising efforts, including a direct appeal to local customers and others around the Baltimore region to buy stock in the company.
The bank sold its consumer finance unit, and Hale put up $2 million of his own money in a complex deal that erased $20 million in debt.
In total, First Mariner raised at least $25 million, but it wasn't enough to meet regulators' capital requirements. The bank missed a crucial deadline in June, and had been trying to raise additional capital since then.