By Bartlett Naylor
It’s axiomatic that unconfronted bullies keep bullying. And if the bully is rewarded for bullying, well …
On June 11, shareholders of First United Bank, a local bank headquartered in Oakland, Md. (population around 2,000) will vote on competing slates of directors for the board. One slate was nominated by the incumbent board, the other by a private equity hawk hoping to precipitate a sale of the bank at a price higher than where he invested.
My great-grandfather Alonzo Drake Naylor helped to co-found this bank. After apprenticing as a blacksmith with his father in Hedgesville, W.Va., he migrated to Oakland, Md. (not enough work there for two blacksmiths). Oakland and nearby hamlets such as Deer Park and Mountain Lake attracted the high and mighty of pre-airconditioned Baltimore and Pittsburg looking to escape the heat. It’s 2,500 feet above sea level. While Washingtonians swelter in 90-plus degree heat, it’s a pleasant 80 degrees here on June 10.
Blacksmith work grew into a hardware store – AD Naylor & Co, which exits today – and my great-great grandfather lend some of his profits to customers and friends. Many years, mergers and other deals later, and it’s First United Bank & Trust. It employs 319 people and operates 25 regional branches stretching from Morgantown, W.Va. in the west, to Frederick, Md. in the east. The bank recently won plaudits from its small business customers for quickly processing crisis aid through the federal Paycheck Protection Program.
It got clobbered by the 2008 financial crisis and its stock price fell precipitously. In the last decade, it’s stock increased, but is still below pre-crash levels.
Enter Abbott Cooper – the founder and managing member of a boutique private equity firm named Driver Management LLC – which purchased about 5% of First United. Private equity firm need not disclose the identity of their investors, nor Cooper’s pay. On average, the partner of a private equity firm makes $1.6 million. It is unclear how many employees work at Driver, but it is likely far fewer than the 319 individuals at First United.
Driver doesn’t make loans to real businesses. When it buys bank shares, it doesn’t have a plan for the bank to operate more effectively and instead agitates for a sale to a larger bank. I, too, am an investor in First United, and if Driver succeeds, I might make a profit.
But it also means that the bank my great-grandfather co-founded probably will be absorbed by a regional bank; the current CEO and President Carissa Rodeheaver and senior loan officers will be replaced by transients climbing the rungs from business school to bigger banks; branches serving smaller, marginal markets might close; small businesses won’t get loans because larger banks don’t have the time for underwriting diligence; and the great concentration of American banking will become that much more concentrated.
Because of interstate banking and mergers, the number of banks has declined from more than 15,000 in 1980, to 8,000 in 2002, to fewer than 5,000 today.
Private equity firms have become the bane of many workers, indenturing the likes of Toys R Us with debt, sucking out fees, bankrupting them and sending their employees into the unemployment line.
How does Cooper exert pressure? At 5%, he hardly has control. As he has done with several other small banks, he brings the sharp elbows of a New York City investment banker (he came from Merrill Lynch Bank of America), with big lawyers (Morgan Lewis Bockius) and ad hominem attacks.
He has called Ms. Rodeheaver dishonest said she “assaulted” his rights. He has called the First United board liars And with true New York arrogance, he claims that the scheming, devious Rodeheaver, not he, has forced the innocent, waif, investment banker into a “back alley brawl.”
More pressure comes through the media. He goes on Bloomberg TV, does podcasts and issues press releases. He presents well, complete with soothing, professorial glasses. He does this with all the little banks he targets and he makes a lot of money. (See above re “bullying.”)
Residents of Garrett County aren’t experienced brawlers. When we don’t like something, we say things like, “that’s interesting.” We don’t travel that much. Among the 30,000 residents living in our 626 square miles, we had just 10 COVID-19 cases as of June 10 and thankfully no deaths so far. The first four cases were folks returning from a Colorado ski trip. Again, it’s pleasant here, so there’s no need to leave much.
Cooper is underwater now, in part because the coronavirus did a number on First United’s shares. He may well lose his bid to replace three board members with his own candidates – to be decided in a vote on June 11. The major proxy advisory firms (Glass Lewis and ISS) who serve the major mutual funds such as Vanguard, which is First United’s largest shareholder, advise against the Cooper slate. So, there’s a good chance board meetings will continue to be the local folks at least for this year.
However, Cooper says he’s not leaving. According to a recent press statement, he plans to hunker down and keep up the pressure.