Bremer Trust says bank sale ‘only path forward’

The Otto Bremer trustees released a filing on Dec. 9 in response to Bremer Financial Corp.’s lawsuit, stating that the trust has the legal right to sell the bank, and that federal tax laws all but leave them no option.

Bremer Financial – the holding company of Bremer Bank, owned mostly by the trust and based in St. Paul – believes the Trust’s counterclaim is baseless, according to a statement. 

This most recent exchange continues the company’s battle for the bank, which began publicly in October, when the trust’s proposal to sell the bank was met with unanimous opposition from the BFC board. The three trustees – Daniel Reardon, Brian Lipschults and Charlotte Johnson – then called for the removal of any non-OBT board members. 

The $12 billion holding company responded with a lawsuit against the OBT when it purportedly transferred 37 percent of the voting stock to out-of-state hedge funds, calling the move “an attempt to seize control,” from the company’s employee shareholders. 

The trust was founded in 1944 by Otto Bremer, who included a provision in the trust instrument  that directs the trustees to retain all Bremer shares until it becomes “necessary or proper” to sell them due to “unforeseen circumstances.”

The trust’s counterclaim on Dec. 9. said Bremer Financial didn’t have the legal right to reject its decision to sell the company. “When Mr. Bremer created the trust, he left no room for the BFC board to second-guess this decision by the OBT trustees.”

“The trust instrument, to which BFC is not a party, makes clear that the ‘trustee’s opinion’ governs the issue of ‘unforeseen circumstances’ and ‘necessary and proper,’” the filing said. 

And the trustees said in the filing that the sale is “forced by unforeseen circumstances.”

The OBT is required to annually distribute at least 5 percent of the fair market value of its assets. In 2019, BFC shares were double their previous valuation. 

While this would mean the trust’s charitable distribution requirement would increase, the trustees said that the trust wouldn’t be able to meet the distribution requirement without about $50 million in additional income from BFC each year. 

“BFC cannot sustainably increase its dividend by that amount,” the trustees said in the filing. “OBT now faces an existential crisis. And its only path forward is to sell its shares in BFC.”

Bremer Financial, however, said that the trust has held its shares for decades without a problem meeting the disbursement requirements. “OBT’s claim that required distributions must increase substantially as a result of market value changes is unfounded,” said a Bremer Bank website post. “The OBT trustees want to sell BFC for their own reasons and are citing legal requirements as a pretext.”

In response to the filing, Bremer Financial reiterated grievances from its initial complaint filed on Nov. 19. 

“Bremer financial does not recognize OBT’s purported stock transfer as valid,” BFC said in a statement. “It is troubling that the OBT trustees have attempted to forfeit a strong, independent, community-focused institution like Bremer Bank – and the trust it fuels – to a group of out-of-state investment funds, who have neither the best interests of Bremer employees nor the communities we serve throughout Minnesota, North Dakota and Wisconsin in mind.”