Hale facing long odds in bailing out 1st Mariner

The last time regulators ordered Ed Hale to fix a money-losing bank or have it seized by the government was the early 1990s.

The trucking executive had gained control of the Bank of Baltimore, which lent itself into trouble in the last real estate crash. Hale and other dissident shareholders took over the board, pulled the bank from a pit and made millions of dollars when they sold it to First Fidelity a couple of years later.

Now that 1st Mariner Bank is in the same flavor of soup, Hale is suggesting he can pull off a similar rescue.

"We have the people to do it," Hale said in an interview Tuesday. "It's not like we haven't been there before. We think we can do it."

1st Mariner, which Hale founded after he sold the other bank, employs several key executives who worked through the earlier troubles, he said.

But their chances are long. In the worst credit market in memory, Baltimore's biggest remaining independent bank has to come up with at least $20 million between now and July to avoid being seized by federal regulators. That's according to a cease-and-desist order 1st Mariner signed last week that looks very similar to an ultimatum Hale got in the 1990s.

The economy is recovering but still very weak. The value of some of 1st Mariner's assets still seems to be falling. And while 17 years ago Hale was cleaning up somebody else's mess, today he sits in a pile very much of his own making.

Hale's travails as boss of 1st Mariner could affect his other prominent roles, as owner of the Baltimore Blast soccer team and developer of Canton Crossing on the east side of the harbor.

In fact, they already are. His bombshell disclosure that lenders are trying to foreclose on the tower that holds the bank's headquarters and bears the bank's name throws the next phase of Canton Crossing into uncertainty. Hale's real estate arm, not the bank, owns the tower. But that distinction is probably lost on many.

Bad real estate loans caused huge losses at 1st Mariner and eroded the capital that exists to honor its obligations and give its stock value. That's the same story as at hundreds of banking companies across the country. For months Hale has been trying to raise capital, but the news has been almost unrelentingly bad.

Last fall when the government was throwing bailout money around, 1st Mariner was temporarily ineligible because of alleged discrimination against Hispanics in its Northern Virginia office. Hale blamed rogue employees and agreed to a settlement with regulators, but he never did get the bailout bucks.

Now he's negotiating to sell the bank's consumer loan business to an undisclosed buyer for about $10 million, roughly half what banking analysts thought it was worth six months ago.

"Because of the condition of our bank and our need for capital, the people that are purchasing it are making a very tough deal," he said. "As a practical matter, we would swallow our pride and do this - just because we have to raise the capital. It's all about capital."

There's no guarantee the deal will get done, lousy as it is. Hale has been talking about it for months. Even if it does, 1st Mariner has to raise another $10 million to mollify the Federal Deposit Insurance Corp.

And even that might not be enough. 1st Mariner looks more likely than other banks to have to set aside new reserves for bad loans, said independent banking analyst Bert Ely. If that happens, the hole gets deeper.

Where would 1st Mariner get $10 million? The company has hired New York advisory firm Sandler O'Neill to come up with ideas.

"We're going to go out and possibly get some money from our board members," Hale said. But they might not be much more liquid than Hale is himself.

Which hints at the real key to Hale's becoming the rare banker to parry two cease-and-desist orders for inadequate capital. His fate is tied to the economy. If unemployment stops rising, if the nation starts adding jobs, if the moneyed classes decide to lend to somebody besides the very safest borrowers, 1st Mariner could stop its losses and increase its capital.

It has nine months.

Hale paints the FDIC's diktat in a good light, saying it gives investors a clear view of what 1st Mariner must achieve and when.

The stock market had a different opinion. After news of the order broke late Monday, the bank's shares fell 33 cents a share Tuesday to $1.55, losing 18 percent of their value.