Bremer Financial executives appeared to be in favor of a merger in early 2019, the trustee says

The executives of Bremer Financial Corp. held preliminary merger talks with South Dakota-based Great Western Bank in early 2019 on a deal that would have retained the Bremer name and transferred responsibility for the combined company to its CEO, documents and testimony in a court hearing revealed Tuesday.

However, trustees of the Otto Bremer Trust, which at the time had a 92% stake in the bank, rejected the transaction structure, a trustee, Brian Lipschultz, said at the hearing.

“It was an existential question for the trustee,” said Lipschultz. He added: “We had an absolute crisis in hand.”

The trustees feared that the trust’s roughly 45% stake in the running company could limit its annual dividend so severely that it might fail to meet state distribution requirements for a not-for-profit trust.

The Minnesota attorney general wants a Ramsey County judge to remove Lipschultz and the other two trustees of the St. Paul-based Otto Bremer Trust for alleged mismanagement.

The state’s persecution of the trustees began after they continued looking for a buyer for Bremer Financial in 2019 when a deal with Great Western was not reached and the bank’s executives and board of directors refused to look for another.

Lipschultz appeared on a second day in St. Paul at a hearing on the state’s application for dismissal and informed about the breakdown of the relationship between the trustees and the Bremen financial directors and boards by 2019.

When interviewed by Assistant Attorney General Carol Washington, Lipschultz admitted the relationship became so bitter that he and trustee Dan Reardon wrote allegations of criminal suspicion against Bremer Financial executives in early 2020.

“Everything will come out,” Lipschultz wrote in January 2020 in a text. “You are involved in truly criminal machinations. Not just bad or inconsistent governance.”

“Amazing, sad and unhappy,” Reardon replied. “They ruthlessly squander assets.”

In response to inquiries from the Trust’s external attorney, Jan Conlin, Lipschultz presented the executives and board members of Bremer Financial later that day as initially open to discussions with Great Western.

He did not name the other bank. The parties agreed at the start of the hearing not to publicly identify any counterparties, with the one simply referred to as “Company A” in early 2019. But documents filed as testimony, including the size of its assets in 2018 and the location of its offices, made it clear that Company was A Great Western.

Other documents last week showed that later in 2019, trustees had deals with the U.S. banking unit of BMO Harris and Huntington Bancshares, the Ohio-based banking firm that recently partnered with TCF Financial.

A representative from Great Western did not respond to an email request to leave a comment on Tuesday. The Sioux Falls-based company last month agreed to a stock merger with Montana-based First Interstate BankSystem Inc. that will be completed next year and renamed First Interstate.

But in early 2019, top executive Bremer Financial met CEO Jeanne Crain in person and made progress on a deal that would have united two of the largest regional banks in the Upper Midwest. There would have been little overlap in offices, with Great Western operating primarily in South Dakota, Iowa, Nebraska, and Kansas, and Bremer in Minnesota, Wisconsin, North Dakota, and Montana.

Bremer Financial is not involved in the current court hearing and has disputed some details of the trustees in a separate legal dispute. Crain, the top executive, is due to appear in the current trial later this week.

The bank and trust have been arguing since summer 2019, when the board of Bremer Financial decided not to pursue any further business, as to whether the trust could sell its stake in the bank.

In the founding deed of the foundation’s founder, Otto Bremer, from the 1940s, it is stated that the trust could only sell the bank under “unforeseen circumstances”.

On Tuesday, Lipschultz described several conditions of modern banking – such as the digital banking revolution and the consolidation of banking firms – as conditions that met those criteria.

He also testified about documents drawn up by Bremer Financial’s top executives in the late 1980s – the last time the legal relationship between the two companies changed – warning other Bremer Financial shareholders that the nonprofit Trust could sell its stake at any time.

“A purchase or merger offer could be available next year, in five years, next week or never,” said Bremer Financial at the time to its shareholders. The foundation is responsible for maintaining its “charity by protecting and enhancing the foundation’s assets”.

“Is there anything in these documents that says Bremer Bank can block a sale?” asked Conlin Lipschultz.

“Not one,” he replied.