First Mariner stock rises on news of potential deal

$160 million infusion would dilute value, but it beats FDIC takeover

  • Edwin F. Hale Sr., chairman and CEO of 1st Mariner Bank.
Edwin F. Hale Sr., chairman and CEO of 1st Mariner Bank. (Baltimore Sun photo by Amy…)
April 20, 2011|By Jamie Smith Hopkins, The Baltimore Sun

Investors reacted positively Wednesday to First Mariner Bancorp's efforts to save itself with the help of a New York firm, pushing the Baltimore company's stock price up more than 7 percent.

Shares closed at 74 cents, up from 69 cents on Tuesday. The stock — which peaked at $20 a share in 2006 before tanking amid the housing bust and recession — traded as high as nearly 12 percent above the Tuesday closing price for part of Wednesday morning.

The 1st Mariner Bank parent announced after markets closed Tuesday that Priam Capital, a New York private investment partnership headed by Baltimore native Howard Feinglass, would take a nearly 25 percent ownership stake in exchange for $36.4 million in much-needed cash. The deal is contingent on the bank raising an additional $123.6 million from other investors.

As part of the deal, the bank's founder, Edwin F. Hale Sr., would step down as chief executive and chairman. The company said he is considering an offer to take a seat on the new board until 2012.

Hale developed First Mariner into the largest independent bank in Baltimore, but it was hit hard during the past few years. Regulators have ordered the bank to raise more capital, and auditors warned in March that First Mariner might not be able to remain in business — citing "recurring losses" and "a limited capital base."

Local banking consultant Brian Casey said it made sense for First Mariner to avoid a federal takeover. A $1.3 billion community bank is a lot for the Federal Deposit Insurance Corp. to swallow, which is why he thinks regulators have given First Mariner so much time to find an alternative.

"If this was a $500 million bank, they would have put it into receivership, I think," said Casey, who performed work for First Mariner when it went public in 1996 but hasn't had a business relationship with the company for years. "It's a logistical nightmare for the FDIC."

First Mariner and Feinglass declined to comment Wednesday, citing Securities and Exchange Commission rules governing the stock deal.

Though First Mariner stock got a bounce Wednesday, Casey said some shareholders might balk at the plan because the $160 million infusion into a company with a current market capitalzation of less than $14 million would dilute the value of existing shares.

"The response [to that] would be, 'Well, if they take it into receivership, your equity is wiped out, so would you like to have next to nothing … or nothing?'" Casey said.

Under the deal, current shareholders would have an opportunity to increase their stake in First Mariner. After raising the capital needed to complete the agreement, the bank plans to offer $15 million in new shares to current shareholders. Those shares would be offered at 50 cents each, the same price Priam intends to pay.

First Mariner insiders are among the largest shareholders. Hale is No. 1, with close to 3.5 million shares representing a stake of nearly 19 percent in the company. Five other board members are in the top 10.

But there are local shareholders with small stakes, too. As part of his campaign to keep the bank from failing, Hale took his pitch for more capital directly to retirees, small business owners and others last year. Those appeals raised $7 million, on top of a $3.9 million stock sale to people who were already shareholders.

Feinglass, whose partnership could end up as the new largest shareholder, has local roots. He's a 1978 graduate of the Gilman School in Baltimore and served on its board of trustees from 1997 to 2008.

While a student at the private school, Gilman officials said, he edited the student newspaper, headed the Political Club and won an award reserved for one student each year "who, by his cheerful helpfulness in many ways, has greatly contributed to successful and pleasant life in the school."

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