Mercantile discipline could make 1st Mariner shipshape

Ed Hale, founder of First Mariner Bank, is pictured in his 16th floor office in the First Mariner Tower.
Ed Hale, founder of First Mariner Bank, is pictured in his 16th floor office in the First Mariner Tower.(Baltimore Sun/Algerina Perna)

The winds of economic destruction blow as hard in Baltimore as anywhere else. But business brainpower tends to stay anchored to the land of pleasant living.

Alex. Brown is long gone, but the firm's tradition and former employees carry on at Brown Advisory, Signal Hill Capital and other firms. Legg Mason's former securities-research operation runs under the Stifel Nicolaus label. Felix Dawson isn't employed by Constellation Energy any more, but he's still here, working to save the Baltimore Grand Prix.

Now senior executives who once worked for Mercantile Bankshares, bought by PNC Financial in 2007, are part of the effort to revive 1st Mariner Bank.

Jack E. Steil, who was Mercantile's chief credit officer, has been advising investors contemplating a capital infusion and takeover of 1st Mariner, which has been plastered by uncollectable mortgage and commercial loans. Robert D. Kunisch Jr., who worked with Steil at Wilmington Trust after they both left Mercantile, is also part of the team. (M&T Bank bought Wilmington Trust this year.)

1st Mariner disclosed the executives' involvement on Friday as part of its announcement that Edwin F. Hale Sr., the bank's founder, face and biggest shareholder, has resigned as chairman and chief executive. Steil and Kunisch are working with private equity firm Priam Capital, which said in April it would invest millions in 1st Mariner and try to raise additional capital to turn the bank around.

Whether that deal gets done is far from guaranteed or even likely. The parties have missed two self-imposed deadlines to complete it. 1st Mariner continues to shed money, having declared a $7.9 million loss for the third quarter. Hale doesn't sound optimistic that the economy will turn around any time soon.

"I don't see any end in sight for the spiraling down of real estate values," he said in an interview.

Nor is Hale's departure a promise that a Priam investment is close. He has said all year that he would make way for a Priam-appointed chief executive. But when asked about the timing of his resignation Thursday, Hale said it was tied to that fact that he turned 65 in November, the traditional age of retirement. He declined to comment on whether a deal is close.

Steil and Kunisch didn't respond to phone messages left at their homes. But if they end up running 1st Mariner for Priam, the culture change is likely to be striking.

Hale is a plain-talking former trucking executive who prides himself on a working-class background. Mercantile was the blueblood bank, lending largely to the rich, founded during the Civil War to protect the wealth of tobacco interests from marauding Union troops.

Another contrast: Mercantile made loans that got paid back. Under the leadership of H. Furlong Baldwin from the 1970s to the early 2000s, it was one of the most profitable banks and best-performing stocks in the country. From the CEO's office to the bank tellers, Mercantile operated under a philosophy of prudent risk-taking, an approach that Steil is said to have absorbed.

One of Steil's mentors was Douglas W. Dodge, who retired as Mercantile's president in 1994 and was credited by Baldwin at the time as instilling a lending discipline that "was responsible for our weathering, in good style, the problems that pervaded our industry" during the real estate crash of the early 1990s.

Like Dodge, Steil "knew how to underwrite, knew how to make sure standards were adhered to at the company," said David E. Borowy, Bay Bank's chief financial officer and a former Mercantile executive. "He held loan officers accountable for each loan that they made. They didn't have a chance to pass it off to a workout group. If a loan went bad, these were the guys that had to live with it."

1st Mariner did not weather the 2000s real estate crash in good style. The best future loan discipline in the world can't change the fact that the bank has lost more than $100 million since 2007. It's hard to imagine a rescue by Priam or anybody else that doesn't involve huge taxpayer contributions via the Federal Deposit Insurance Corp.

But if the government and investors can agree on a rescue deal, 1st Mariner will be long overdue for Mercantile-style lending standards. And in Baltimore, the enduring intellectual capital of business may have paid off again.