Crown Bancorp Again Bracing for Proxy Fight

For the second straight year, Crown Bancorp is bracing for a possible proxy fight.

Last week, Edward E. Schmidt, former president of Crown’s Capital Bank of Carlsbad subsidiary, mailed a letter to selected shareholders of the Coronado bank holding company asking for voting rights to their proxies.

Moreover, Schmidt, according to sources close to him, has told associates that he has lined up several Canadian investors who are prepared to pump as much as $2.5 million into Crown.

Schmidt’s letter criticizes current management for Crown’s $2.5-million loss in 1985 and recommends that Schmidt be elected to the board. No other potential directors are mentioned.

Schmidt’s goal is “to become an active director,” he said in an interview Tuesday. In addition, there are “other shareholders interested in becoming directors,” he said, but he declined to identify them.

Because Crown directors are elected by cumulative voting--whereby a shareholder may cast all of his shares for one director rather than vote once each for, say, six directors--”it’s hard to tell how many shares he would need to be elected to the board,” according to Crown Bancorp President Mike Justice.

Justice was appointed president of both Crown and Bank of Coronado in October, three months after being named interim president.

His selection capped a year of controversy and in-fighting at Crown: A president and a chairman resigned, a proxy fight brewed but later cooled, a cease-and-desist order was initiated by regulators, several bank loans connected to directors came under fire and the manager of the bank’s San Ysidro branch was indicted on money laundering charges.

Under Justice’s administration, things have quieted considerably.

Reserves Increased

But red ink has appeared, as Crown increased its reserve for bad loans and trimmed its asset base. Bad loan reserves now total about $1.5 million, about double the amount a year ago, and assets now total about $60 million, down from $79 million a year ago.

“Some new talent is needed to steer the holding company into a more profitable position,” Schmidt said Tuesday.

Justice on Tuesday compared Schmidt’s missive to a “campaign promise letter, promising a lot of things. He said that the company had been on a two-year slide, but it was only really in 1985.”

What’s interesting, Schmidt had applied and was interviewed for Crown’s top spot, but lost out to Justice last fall.

It is uncertain who is actually backing Schmidt, although sources close to Crown predict that he could accumulate as much as 200,000 of the total of 624,000 shares outstanding.

Former Chairman Dustin Rose, who stepped down Oct. 1 after fighting corporate demons both within and without the company, would not comment on Schmidt’s letter.

If he is backing Schmidt, he’s doing his best to conceal it. When Crown holds its annual meeting June 30, Rose will be off on a three-month fishing trip.

‘I’m Not Involved’

Similarly, former Chairman Richard Maitland, the owner of Coronado Shores Co., who resigned in mid-1984 after an internal fracas among directors, will be in Hawaii on June 30, attending his son’s wedding.

“I’m not involved,” he said Tuesday. “I’m an innocent shareholder (he owns more than 28,000 shares), I’ve been out for two years and I’m trying to stay out of it.”

Maitland said he will “leave my proxy with current management. They’re working hard to resolve the problems. . . .”

Crown has applied to merge its Capital Bank into the Bank of Coronado, but Justice said Tuesday that the board “would consider selling it” if a “qualified buyer came along.”

Schmidt and others have been vocal in their opposition to the merger. “I’m against merging the bank because of the expense the holding company went through not more than a year and one-half ago to open it.”

Other shareholders have criticized the move because it would, they say, take away the hometown flavor of the Carlsbad bank.