Minnesota Charities Out At Least $500M Because Of Bremer Financial’s Loss Of Value

Minnesota Charities Out At Least $500M Because Of Bremer Financial’s Loss Of Value

A downturn in the banking industry and the St. Paul-based bank’s lower financial results likely meant the difference between a $2 billion and $1.4 billion sale.

Minnesota Charities Out At Least $500M Because Of Bremer Financial’s Loss of Value

A downturn in the banking industry, combined with Bremer Financial Corporation's lower-than-expected financial results, has caused the St. Paul-based bank to lose substantial value, resulting in a financial shortfall of over $500 million for Minnesota’s nonprofit sector. This loss comes after the bank agreed to sell to Indiana-based Old National Bank for $1.4 billion, a significant drop from the $2 billion sale price Bremer Financial had anticipated in 2019.

Bremer Financial, which operates as one of Minnesota’s most prominent banks, is primarily owned by the Otto Bremer Trust, a charitable entity established to benefit nonprofits in Minnesota, North Dakota, and Wisconsin. This unique ownership structure allowed Bremer to channel a large portion of its profits into local charitable causes, helping fund community organizations, educational initiatives, healthcare access, and other nonprofit ventures for many years. However, recent struggles in the banking industry, along with declining financial results for Bremer, have led to a reduced sale price, which will directly affect the amount of money available for these charitable purposes.

The sale price of $1.4 billion represents a major drop from previous expectations. When Bremer first received offers in 2019, the bank was on track to secure a sale price close to $2 billion. The $600 million difference has largely been attributed to both broader trends within the banking sector, such as interest rate hikes and increased regulatory pressure, and the specific financial performance issues at Bremer. In particular, the bank has faced challenges related to loan losses, lower-than-expected revenue growth, and changing market conditions. These difficulties have significantly reduced its financial standing.

The Otto Bremer Trust, which holds the majority of Bremer’s stock, relies on the bank’s value to fund its charitable work. As the primary owner of the bank, the trust has historically been able to distribute hundreds of millions of dollars annually to nonprofits across the region. In 2024, however, the trust’s distribution dropped by 24%, from $105 million in 2023 to just $80 million, reflecting the impact of Bremer’s financial downturn. These reductions in charitable giving have left many organizations scrambling to make up for the lost funding.

The financial situation has been especially challenging for nonprofits that were heavily reliant on the Otto Bremer Trust for their annual funding. Many of these organizations provide critical services, including homelessness prevention, educational programs, food security, mental health services, and community development initiatives. With the reduced funds, these charities are facing tough decisions about how to scale back operations or find alternative funding sources, even as demand for their services continues to grow.

The reduced sale price and its consequences also highlight the risks associated with the Otto Bremer Trust’s structure as the primary owner of a financial institution. While the trust’s charitable mission has long been a source of pride, this situation demonstrates the vulnerabilities of a trust that is heavily dependent on the financial health of a single institution. The recent decline in Bremer’s value calls into question whether this model remains sustainable in the long term, particularly as the banking sector navigates economic volatility and regulatory challenges.

Had the bank been sold for $2 billion, as was expected in 2019, the Otto Bremer Trust would have been able to allocate an additional $500 million in charitable contributions to its nonprofit beneficiaries. This shortfall has left a gap in the resources available for Minnesota charities, many of which were banking on continued, consistent support from the trust. For example, in previous years, organizations like the Minnesota Community Foundation, local food banks, and various health initiatives received substantial contributions that allowed them to expand their outreach. With the reduction in available funding, these groups are being forced to make tough choices about how to maintain their services.

The sale to Old National Bank is expected to close in the first quarter of 2025, and while it will provide immediate financial relief to the Otto Bremer Trust, it remains uncertain how the long-term effects of the sale will play out. The diminished sale price means that, even with the influx of cash from the sale, the trust will not be able to provide the same level of funding to nonprofits as it once did. Some worry that as the bank changes hands, future distributions to charities could continue to decrease, leading to a more unstable financial footing for many nonprofit organizations in the region.

Furthermore, this situation raises broader questions about the complexities of charitable ownership in the financial sector. While the Otto Bremer Trust's mission has been well-regarded for directing significant philanthropic funds into local communities, the lack of diversification in the trust's investments has proven to be a vulnerability. The lesson here may prompt other organizations to reconsider how they structure charitable ownership models, as relying too heavily on a single asset or entity could expose their charitable goals to similar risks during times of financial instability.

As Minnesota’s nonprofit sector grapples with this significant financial setback, the impact of the bank's decreased value will likely be felt for years to come. Local charities, community leaders, and policymakers are already beginning to explore ways to mitigate the short-term harm caused by this loss, but the long-term effect on Minnesota’s charitable landscape is still unclear.

SOURCE: StarTribune