An all-out battle over Baltimore's last major independent bank broke out Monday in federal bankruptcy court, leaving a judge to decide — potentially later this week — whether the institution is sold to an investment group with local ties or to a Pennsylvania bank.
Both parties want to be named the winning bidder for 1st Mariner Bank, which was auctioned last week as part of its parent company's bankruptcy case. At stake is whether the bank remains based in Baltimore or is merged into the Allentown, Pa.-based National Penn Bank.
After years in which the struggling 1st Mariner could find no takers, a fierce contest over who gets to buy it is an interesting turn of events, said banking consultant Bert Ely.
"One of the things I think that shows is there is some value, or at least perceived value, in the 1st Mariner franchise," said Ely, based in Alexandria, Va.
After a long auction on Thursday, the bid that includes Priam Capital of New York and local investors was valued at $150,000 more than National Penn's under the complex rules of the auction. But parent company First Mariner Bancorp chose the offer from National Penn, judging it the most likely of the two competitors to get quick regulatory approval.
"In the end, if you don't get regulatory approval, you can't close the transaction," said William Boyan III with Sandler O'Neill, First Mariner's financial adviser.
The hearing resumed Tuesday morning with the creditors' committee in the First Mariner case saying it now supports reopening the auction. Meanwhile, the Priam Capital led group has sweetened its latest offer with a deposit.
This week's hearing in the U.S. Bankruptcy Court in Baltimore was the latest in the long-running drama of 1st Mariner.
It was founded by business executive Edwin F. Hale Sr. in 1995 to be a "hometown" bank as Baltimore was losing a string of its independent financial institutions to out-of-state players. More acquisitions since then left it as the last Baltimore bank with more than $1 billion in assets.
That's why the deal is personal for the Baltimore-area investors, including local bankers Jack E. Steil and Robert D. Kunisch Jr. The two men have been trying to acquire 1st Mariner Bank for more than three years.
"We were the highest bidder," Kunisch said after the hearing adjourned late Monday afternoon. "We're hoping we'll be successful in preserving the last significant bank in Baltimore."
National Penn's attorneys declined to comment Monday, but bank officials said earlier that they planned to keep the 1st Mariner name locally and reinvigorate the institution. National Penn has more than 100 branches in Pennsylvania and one in Cecil County.
The hearing to decide who prevails is scheduled to continue at 10 a.m. Tuesday.
1st Mariner Bank's parent company, which hit a wall after residential mortgages soured during the housing crisis, filed for bankruptcy protection Feb. 10. The bank itself is not in bankruptcy. Bank deposits, loans and contracts were not affected by the bankruptcy, the company said.
Court documents and testimony showed that National Penn's final bid of $19.1 million was valued at just over $13.7 million after various subtractions, including breakup fees. The Priam group, organized under the name "RKJS Bank," then made a bid valued at nearly $13.9 million, and National Penn declined to make further offers.
Attorneys for RKJS said in court Monday that First Mariner accepted National Penn's offer without giving RKJS an opportunity to sweeten the deal. RKJS offered $4 million more over the weekend in an effort to show what First Mariner was leaving on the table by taking no more bids.
"In our judgment, the auction was a travesty," said Richard Wasserman, an attorney for RKJS.
First Mariner witnesses said in court Monday that both their advisers and the unsecured creditors' committee considered National Penn's offer the superior deal.
They believe National Penn is better positioned to get fast regulatory approval as a well-capitalized regional bank — and they said higher bids from RKJS to try to outweigh that advantage would hurt, not help.
First Mariner said if RKJS raised its bid further, it would have less money to recapitalize the bank. Kunisch said the group has additional capital ready to deploy if needed.
First Mariner also said the number of members of the RKJS group added risk because even one investor pulling out could potentially kill the deal.
RKJS attorneys argued that their client should be named the winner based on Thursday's bidding, but they're also open to continuing the auction. But National Penn suggested that it would walk away if the process lasts much longer.
"We're a public company, we have earnings coming out — we have reasons this needs to be decided," National Penn attorney Claudia Springer said in court.
The bank's headquarters location might matter to some Baltimore residents, but it wasn't considered during the auction.
"I think there's some emotions, but it did not factor into the decision-making process one bit," said Boyan, the investment banking consultant.