Otto Bremer Trust leaders chose "the most destructive way" to try to sell Bremer Financial Corp. in 2019, the bank's chief executive said in court Monday. She later agreed that the trustees had the right to sell it.
Jeanne Crain, who has led St. Paul-based Bremer Financial since 2016, testified that the sale announcement in October 2019 ran counter to the way most businesses pursue deals.
"It was a value-destroying approach," Crain said. "You're just alerting the marketplace that you've got to sell, that you're almost desperate to sell. You need a controlled, confidential process."
A dispute between the trust, which owns the bank in a unique arrangement, and Bremer executives over the company's direction raged behind the scenes for months in 2019, breaking into the open with the trust's Oct. 28 sale announcement.
A few weeks later, the bank sued, saying a sale would violate the wishes that bank founder Otto Bremer set forth in a 1940s-era document that defines the relationship between the charity and bank. More lawsuits were exchanged before the Minnesota Attorney General's Office, which has oversight of charitable trusts, stepped in.
Ramsey County District Judge Robert Awsumb agreed to hear the state's petition to remove the three trustees before the other cases, leading to an evidentiary hearing that began three weeks ago.
Crain's appearance was one of the pivotal events in the hearing, owing to her opposition to the trustees' strategy and efforts. On Monday morning, she was questioned by Assistant Attorney Christopher Burns, who guided her mainly through the timeline of deal discussions in 2019 before the filing of lawsuits.
In the afternoon, trustees' attorney Mike Ciresi questioned her about her understanding of the relationship between the two entities — and about decades-ago efforts to sell Bremer.
"I had no idea," Crain said, when Ciresi showed her a 1988 bank document that contained a list of nearly 30 banks and investor groups that Bremer and trust executives, working jointly at that time, solicited on prospective deals.
In response to dozens of questions about Crain's understanding of the trust's right to sell the bank, Crain acknowledged it had that right.
In one such exchange, Ciresi said, "It was clear to you that they could sell any number of shares they wanted, correct?" "Yes," Crain replied.
In some of those exchanges, she added that the Attorney General's Office and the court that oversees the trust's compliance with laws governing non-profit entities also had the right to challenge a sale or any deal that the trust attempted.
Since Otto Bremer's death in 1951, the trust has been the bank's primary owner. But due to federal laws, it has no control over its operations. A sizable amount of the bank's profits were funneled to the trust each year, which distributed them to charities in the four states in which the bank operates: Minnesota, Wisconsin, North Dakota and Montana.
At the heart of the conflict is a tension that has persisted for years: the trust needs a guaranteed level of profit from the bank every year in order to distribute enough grants to meet federal requirements to operate as a non-profit entity that pays no tax.
That level was set in a 1989 reorganization between the two Bremer entities, which came after several years of attempts to sell the bank. To questions from both attorneys, Crain said Bremer Financial had met that obligation and took its responsibility to the charity seriously.
"Meeting the threshold as required by the plan of reorganization is something we always had confidence in and the ability to do," Crain said.
She said she held monthly meetings with the three trustees and understood their top priorities were to preserve the profit dividend and to diversify the trust's investments.
At one such meeting in March 2019, Crain told the trustees of a phone call from the CEO of South Dakota-based Great Western Bancorp Inc. The bank executive was interested in uniting the two banks, which both had around $12 billion in assets at the time, through a deal structure known as a merger of equals.
Crain mentioned that same entreaty to the Bremer Financial board of directors at its April 2019 meeting. The board, which included the three Otto Bremer trustees at the time, decided to keep exploring.
But at the next board meeting in late June, the trustees said they couldn't accept a merger of equals and wanted to sell the trust's stake in the bank outright. In her testimony Monday, Crain said the trustees' turnabout "stunned" her.
"It was severing the relationship between the trust and the bank," Crain said. "It seemed very contrary to what Bremer was all about."
In earlier testimony in the hearing, trustees appeared to recognize that it would be difficult to line up a buyer if Bremer Financial's management and directors did not want to go along with a deal. But disagreements continued to mount between the two sides through August and September.
When the dispute broke into public view with the trustees' news announcement on Oct. 28, 2019, that they were pursuing a sale, Crain said she was immediately concerned that employees would worry about their future and that competitors would try to hire them away from Bremer.
"I would say this was the most destructive way to pursue the sale of an organization," Crain said.