An article in the Business section on Dec. 15 incorrectly characterized some assets that Sterling Bank & Trust Co. had acquired from the federal Resolution Trust Corp. The assets were acquired from failed savings and loans, but the assets themselves were healthy and performing properly, according to Sterling officials.
The Sun regrets the errors.
Provident Bankshares Corp. accused Sterling Bank & Trust Co. yesterday of running a woefully incompetent commercial loan operation, understating the extent of its financial problems and hiding all of this information in an effort to persuade Provident to buy Sterling.
The latest accusations were contained in an amended countersuit Provident filed yesterday in its litigation with Sterling, which has sued to force Provident to go ahead with the companies' proposed merger.
In February, Provident backed away from its planned acquisition of Sterling, which has $70 million in assets and three branches in the Baltimore area. Provident said it canceled what was originally a $10 million merger because it became concerned about problems with Sterling's loan portfolio.
Sterling sued Provident in March, claiming the $2 billion company reneged on the deal because Provident's stock had risen, raising the acquisition price to about $11.5 million. Sterling asked the court to force the merger, or, failing that, to award it $5 million in damages.
Provident countersued in May, asserting that Sterling had made misleading statements that concealed the nature of its loan problems, and asking for $5 million.
In yesterday's amended countersuit, Provident asserted that Sterling lied by claiming it had canceled a planned merger with Mason-Dixon Bancshares Corp., when in fact Mason-Dixon had walked away when it saw the extent of Sterling's financial problems.
The countersuit added a longer list of problems that Sterling and its president, Arthur Silber, allegedly tried to hide from Provident:
* Contrary to Sterling's claim that its business was limited to "private banking," or making only secured loans to wealthy depositors, Sterling had no way to track whom it lended to, and many of its loans were failed assets acquired from the federal Resolution Trust Corp., the lawsuit says.
* Sterling claimed that only one of its loans was "nonperforming," meaning its borrower wasn't paying according to the loan terms, when in fact as much as 20 percent of the company's loans were lTC delinquent, and the company had "no effective loan administration."
* The suit alleges that Sterling had attempted to conceal its problem with bad loans by converting them to "demand loans" with no maturity date. That would have enabled the company to remove the "past due" characterization for these loans, the suit maintains.
* Mr. Silber, criticized by an outside consultant, had agreed to step down as chief executive officer, and a search for his replacement had begun, the suit says.
Mr. Silber called the allegations "absolutely nonsensical," and said Sterling is "as healthy and rock-solid as it can be." Mr. Silber, 55, said the only discussion of his departure was in the context of finding a successor for when he reaches retirement age.