In the drive to sell Bremer Financial Corp., the three trustees of the Otto Bremer Trust became divided over what course to take as they encountered hostility from the bank's executives and board, the trustee who led the sales push said Monday in a court hearing.
That trustee, Brian Lipschultz, recognized the difficulty of making a sale happen almost from the start, his testimony and related documents showed.
But in fiery and sometimes profane e-mails, texts and notes throughout 2019, Lipschultz pursued a "once in a lifetime" chance to break the connection between the bank and trust and send both down different paths.
"I felt that it would be easier if the BFC management and board were to concur with us that it was becoming an increasingly difficult environment to run a strictly regional bank," Lipschultz said as he testified about one structure for a potential deal.
For about five months in 2019, the bank and trust warred in private. By the end of the year they were in court, and their legal clash ultimately led the state Attorney General's office, which has oversight of charitable trusts, to intervene. The state about a year ago asked Ramsey County District Judge Robert Awsumb to remove the three trustees of the Otto Bremer Trust for mismanagement.
In the case before Awsumb that began last month in St. Paul, state attorneys have been concentrating on accusations of mistreated employees and misdirected funds at the charitable trust. The other trustees, Charlotte Johnson and Daniel Reardon, testified on those matters.
As the hearing entered its third week Monday, they called Lipschultz to the stand to answer questions about the effort to sell Bremer Financial, which operates Bremer Bank, Minnesota's fourth-largest with about $15 billion in assets.
He said the conflict began when top executives of Bremer Financial informed the three trustees in March 2019 that a bank had approached the company to discuss a "merger of equals." The board of Bremer Financial learned of the overture at a meeting in April, he said.
Bremer Financial, which is not a direct party to the court hearing, has disputed some of the portrayal of events by the trustees. No executive from the bank company has testified in the hearing.
Lipschultz reiterated the trustees' public portrayal that they sought a deal in part because the bank, which has not been identified, proposed a deal that valued Bremer Financial at nearly twice as much as trustees or others associated with Bremer previously considered.
Within weeks, Lipschultz said, the trustees hired an investment banker to explore alternatives that included an outright sale of Bremer Financial, in which the trust held a 92% stake — an arrangement unlike any other in American banking. By June, however, the three trustees were disagreeing about tactics.
In a June 18 text message to the trust's investment banker, Lipschultz asked for "quantifiable updates." He then added that Johnson, one of the other trustees, was wary of conflict with Bremer Financial executives and its board.
"She is against an outright sale and of course the rest of the Board will probably cluster around that point of view unless we have something that's so irrefutably superior as an alternative," Lipschultz said in the text. "Hopefully things are shaping up in that direction."
Three days later, Lipschultz and Reardon told the Bremer Financial board they were looking for buyers on their own. "This morning, we're opening a once-in-a-lifetime door for which there is no going back," Lipschultz texted to the trust's investment banker.
About six weeks later, the bank's board formally voted against pursuing any kind of deal. But the trustees continued to explore options.
They continued the first strategy, which Lipschultz dubbed "Smashmouth," that involved finding a single bank to purchase the trust's stake. And they started a second, called "Raptor," that involved selling small portions of its stake to other investors, chiefly hedge funds, to take their side in battling the Bremer Financial board.
In a text to the investment banker in late August 2019, Lipschultz wrote that they had to be "super careful" with the second strategy around Johnson. "When she becomes aware that this strategy involves tossing the current Board in essentially a hostile takeover, she could toss her cookies," he wrote.
Asked on Monday what he meant by "toss her cookies," Lipschultz testified, "I was concerned she would be very upset."
By mid-October 2019, he reported to the banker that Johnson had "signed off" on Raptor. The trust began selling some of its shares to outside investors days later. On Oct. 28, they announced publicly that its stake in Bremer Financial was on sale, bringing the dispute into the open.
They brought no further prospective deals forward before the pandemic hit in early 2020, disrupting the banking industry and economy at large. Awsumb ordered the trustees in November 2020 not to engage in any transactions pending an outcome to the state's request to oust them.