Mike Ciresi, attorney for trust, questions Bremer CEO over sale of bank

Oct. 19—As far back as 1976, the Otto Bremer Trust began receiving offers, phone calls from interested parties and letters of inquiry about a possible acquisition of its major asset, Bremer Bank, a Midwest farm lender based in St. Paul.

By the late 1980s, then-chief executive officer Terry Cummings had assembled a list of "valid inquiries regarding purchase of Bremer Financial Corporation," with potential suitors including investment firms KBW and Morgan Stanley, and a man "representing Middle Eastern oil interests and ... Texas investors."

Some wanted to buy "a toehold." Others, like a group of Canadian banks, wanted to acquire agricultural lenders throughout the U.S. The federal Tax Reform Act of 1969 led most foundations, like Ford and Kellogg, to spin off their for-profit companies, but Bremer argued for a federal exemption. Still, there were no shortage of potential buyers.

"An offer to buy or merge could be received next week, next year, five years from now, next week or never!" wrote Cummings, in a presentation to his board. "Trustees have a responsibility to consider any valid offer, and if of such size and terms as to enhance the foundation's grantmaking capacity and further enhance its charitability, it must accept such an offer."

TOUGH QUESTIONING

Mike Ciresi, an attorney for the Otto Bremer Trust, questioned Bremer Bank CEO Jeanne Crain about the particulars on Monday in Ramsey County District Court.

"Nobody ever told you about this? Never? Not even your lawyers" Ciresi asked.

Crain acknowledged she was unfamiliar. "I've never seen the document," she said. "I have no idea."

Cummings' memo, dated June 23, 1988, was introduced by Ciresi Monday during testimony in a case that has laid bare the inner-workings of the Otto Bremer Trust, a one-of-its-kind philanthropy that holds 92 percent of the financial shares in a private bank.

ELLISON'S OFFICE SEEKS TO UNSEAT TRUSTEES

Minnesota Attorney General Keith Ellison's office is attempting to unseat the three trustees of one of the state's oldest charitable foundations on the basis of "self-dealing" — skipping key financial safeguards in their attempt to sell controlling interests in Bremer Bank to 19 East Coast hedge funds. The trustees have acknowledged that the October 2019 stock transfer was the first step in a strategy to replace the bank board and ready the bank for a sale.

The philanthropy's three trustees inherited their positions from their fathers, an arrangement drafted by German philanthropist Otto Bremer in 1944 to provide oversight. The goal was to use bank revenue to fund charitable causes in Minnesota, Wisconsin, North Dakota and Montana.

Under Cummings, a major reorganization in 1989 attempted to comply with the Tax Reform Act of 1969 without divesting the bank. As part of that reorganization, the trust committed to distributing 5 percent of its assets — based on their fair market value — to beneficiaries.

Ciresi on Monday described how the reorganization created two types of bank shares — 12 million class A shares, which grant voting rights such as seating board members, and 10 million class B shares, which can be converted into voting shares under certain circumstances. Trust attorneys have maintained that the "unforeseen circumstances" opening the door to a bank sale would include if charitable distributions fell below the 5 percent threshold.

The trustees have said that situation arose in 2019, when a letter of interest from a potential buyer valued Bremer Bank at $1.9 billion, or double its book value. Suddenly, said Ciresi, both the trust and the bank were on the hook for huge sums.

"All of a sudden, if the value of the stock doubles, the (annual) distribution requirement would go from $50 million to $100 million, correct?" said Ciresi, addressing Crain. "An 'unforeseen circumstance' would be ... if Bremer Financial Corporation did not have the ability to pay the dividends."

A BANK SALE OF BENEFIT TO THE MIDWEST — AND TO THE TRUSTEES

In more than three weeks of testimony in the probate evidentiary hearing, Judge Robert Awsumb has heard at length how unloading Bremer Bank could net $2 billion, growing the philanthropy. According to the attorney general's office, the same sale could enrich trustees Brian Lipschultz and Daniel Reardon, who as self-named asset managers would pocket a percentage of the sale.

In an amended legal complaint against the Trust, bank officials said Cummings never intended a forced sale and hostile takeover of the bank.

The trustees, in turn, have accused Crain and other members of the bank board of blocking or delaying a sale out of financial self-interest. Crain's base salary was roughly $800,000 last year, but she earned a total of nearly $3 million after bonuses and incentive pay. She also holds nearly 15,000 "class A" shares in the financial corporation, valued at more than $100 a piece.

In her testimony, which began Friday, Crain said that she worked in banking for nearly 40 years, was approaching retirement age and played a leading role in blocking the bank sale out of concern about how it would impact customers, employees and the farm communities served by the bank.

In October 2019, after the bank board had rejected the possibility of a sale outright, the trustees circulated a press release indicating they had begun courting bank buyers. In all, they transferred 725,000 shares of Bremer stock to 19 hedge funds controlled by 11 banks. The "class B" shares were sold at $125 per share.

Crain testified she was taken aback by the announcement, which she said advertised strife within the organization and scared away customers.

The situation kicked off lawsuits between the bank and the trust, employees of the partially-employee-owned bank and the trust, hedge funds and the bank, and the attorney general's office and the trust.