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Banks have hired thousands of employees to handle a crush of work from mortgage refinancing. The big question looming is what to do with those "permanent" employees once the refi market cools down.
November 6 -
Dealmakers have been pushing bankruptcy recapitalizations for a few years. The time may now be ripe with credit quality improving while debt loads linger.
August 21 -
To satisfy creditors, Big Sandy Holding's bankruptcy plan, filed on Thursday, calls for an auction of its $840 million-asset unit, Mile High Banks.
September 28 -
First Mariner Bancorp has warned investors that it is in danger of failing.
March 30 -
To close on a $36.4 million injection from Priam Capital Fund I LP, 1st Mariner Bancorp must raise another $123.6 million — and part ways with Edwin Hale Sr., the company's founder, chairman and chief executive.
April 21
First Mariner Bancorp (FMAR) believes it sees a light at the end of the tunnel, but it remains unclear if the Baltimore company has enough time to reach that point without selling itself.
The $1.3 billion-asset company said last week that it had called off plans to sell a minority stake in itself to Priam Capital Fund I after determining that it could improve its capital levels with retained earnings.
The only problem is that years of losses created a huge capital hole that First Mariner has yet to fill. The company has
First Mariner's situation is quite familiar to industry observers, many of whom are doubtful that management will be able to keep the company independent.
First Mariner "should have gotten off the pot a long time ago" and sold, says Bert Ely, a financial institutions and monetary policy consultant in Alexandria, Va. The Priam deal "never impressed me, but it clears the barrier of First Mariner doing a deal with someone else."
First Mariner announced its $36 million deal with Priam in April 2011, leaving a number of industry observers skeptical that it would ever close because Priam insisted that the company raise another $124 million on its own. The potential investor also insisted that First Mariner
The company accomplished one of those feats; Hale stepped down last December. But First Mariner was never able to announce that it had received commitments for additional investment. Instead, the company managed to return to profitability during the first quarter, and has earned $15 million this year.
"Circumstances … have changed considerably since we entered into the agreement," Mark Keidel, First Mariner's chief executive, said in a press release Friday. The company "has steadily improved its capital position with positive earnings. … We are making progress and will continue to work diligently to increase capital to levels required by regulatory agreements."
Keidel did not respond to interview requests, though First Mariner will hold its annual meeting on Dec. 3 in Baltimore. Howard Feinglass, Priam's managing director, declined to comment.
Retained earnings may not be enough to get capital levels up to snuff, and big investors have been wary of damaged community banks in recent months, industry observers say.
"Since the second quarter, investor appetite for a private equity investment in banks has reduced substantially" mostly because of the economy outlook, says Joseph Thomas, a managing director at Hovde Private Equity Advisors. "Investors' returns to date have been pretty negative if you look on all common equity trades, so it's really hard to get something like that done."
In addition to almost $9 million in negative shareholder equity at Sept. 30, First Mariner also has $52 million in junior subordinated debt outstanding. The company's return to profitability has largely come from mortgage volume, particularly from refinancing, raising concerns about its ability to stay profitable over the long term.
Improving from refinancing activity "won't last forever and it won't solve the problem," Thomas says. "It will just put a Band-Aid on the problem."
Banks with successful mortgage businesses, such as EverBank Financial (EVER) in Jacksonville, Fla., have been aggressively looking to tap into new home purchases and specialty finance to compensate for an
"I'm not convinced the regulators will allow you to be totally dependent on [mortgages] in long run," says Tom Lykos, a managing director at Commerce Street Capital. A key issue for regulators could involve First Mariner's ability to keep servicing debt at the holding company level, he says.
A handful of banks have run into similar problems, where the parent held more debt than equity, yet remained in a position to sell its bank. In some cases, the bank can restructure its debt through creditor approval or force it through bankruptcy if it is unable get the approvals needed.
Big Sandy Holding in Limon, Colo., and Premier Bank Holding in Tallahassee, Fla., recently
Bankruptcy is a viable option, "if a bank is being required to raise more capital and the debt structure in place can't be recapitalized very easily," says Brennan Ryan, a partner at Nelson Mullins who has worked on such deals.
First Mariner is under a time crunch to raise capital. The company and its bank have been operating under cease-and-desist orders. "I don't think the regulators will give them enough time to earn their way to being well capitalized at the holding company level regardless of what's going on at the bank," Ely says.
Still, bankruptcy is difficult and typically is viewed as a last-case scenario, Ryan says. "It's not an easy decision and it's something that takes a lot of time and a lot of thought," he says. "It's usually only used when the company has exhausted every other effort."