ST. PAUL — Bremer Bank is suing its philanthropic parent — the Otto Bremer Trust — in order to halt efforts by three trustees to sell bank shares to a group of hedge funds and outside investors, the first step toward a potential bank sale.
Founded in 1943, the St. Paul-based $13 billion financial institution is the fourth-largest bank in Minnesota and the 11th-largest farm and agricultural lender in the country. The charitable trust is a 92% shareholder in the bank, which is otherwise employee-owned.
The bank company, Bremer Financial Corp., filed suit Tuesday, Nov. 19, in Ramsey County District Court against S. Brian Lipschultz, Daniel Reardon and Charlotte Johnson, both individually and as trustees of the Otto Bremer Trust. The 165-page lawsuit alleges that with the goal of enriching themselves, the trustees have lied to the bank’s board of directors and violated a structure set up 30 years ago as part of a 1989 bank reorganization, the first and last time its bank shares had ever been sold.
Bank President and CEO Jeanne Crain addressed Bremer Financial’s 1,800 employees by phone Tuesday afternoon to apprise them of the lawsuit.
“We don’t believe that Otto Bremer Trust’s actions to transfer a portion of their stock is valid,” said Crain, in an interview.
On Oct. 28, the trustees transferred approximately 37% of Bremer Financial’s voting stock to 19 out-of-state hedge funds, with the goal of replacing the Bremer Financial board of directors and putting Bremer up for sale, according to a written statement from bank officials: “This attempt to seize control of the company from its employee shareholders and deliver it to Otto Bremer Trust and its associates violated … organizational documents and applicable law.”
The lawsuit alleges that as majority shareholders, the three trustees stand to benefit financially at the expense of employee owners, and will take the bank into the uncharted territory of new ownership that may not align with the mission of bank founder Otto Bremer, a German immigrant who helped rescue some 55 rural banks during the Great Depression.
Bremer Financial lends to farmers and rural communities throughout Minnesota, North Dakota and Wisconsin, and is a major mortgage provider for Twin Cities Habitat for Humanity.
Trust: Allegations are false
In response to the suit, the trust issued a written statement on Tuesday: “It’s disappointing that (Bremer Financial) has chosen a path of obstruction and conflict in this matter. In doing so, they are acting in a manner that seems certain to hurt the bank and its employees, to waste the resources of the company and to hurt the people Otto Bremer dedicated his life and fortune to helping. The allegations in the lawsuit are false and without merit.”
The statement goes on to say, “We’re confident the courts will quickly see this tactic for what it is: an ill-founded attempt by conflicted management and directors to deprive all shareholders of the value of their stock and to deny employees and communities of any legitimate exploration of their opportunities.”
‘An outright sale for cash’
In 2018, Lipschultz earned $525,000, Reardon earned $532,000 and Johnson earned $347,000 — more than 50 times higher than the median compensation for trustees of American foundations, the suit alleges. The trio fired the trust’s executive director in 2014 and named themselves as co-CEOs, effectively eliminating day-to-day financial oversight of their decisions.
A company of similar size to Bremer approached the bank in April to discuss the possibility of a merger, according to the lawsuit. When discussions failed to move forward, the trustees began to advocate for “an outright sale of Bremer for cash.” Without the knowledge of the bank’s board of directors, the trustees allegedly hired the investment bank Keefe, Bruyette & Woods as their sale adviser.
The suit alleges that under pressure from the board, Lipschultz agreed to tell the financial advisers not to court any potential buyers. In reality, talks continued, and on Aug. 8, Bremer Financial received notice from a larger financial institution interested in a possible acquisition of the bank. The bank directors met to discuss whether to engage in sale talks but voted against it, only to learn later that the institution had already withdrawn its offer.
The trustees’ intent, according to the suit, was to dupe the board into approving a sale process, even without a buyer in the wings.
The bank paid out $76.4 million in dividends to shareholders last year, including $70.3 million to the Otto Bremer Trust and $6.1 million to employees.