Wanda betrayed Banhammer to Stanley.
Stanley found the Arkenhammer by accident when he stumbled into FAQ on a mission from King Saline IV. In FAQ he met Wanda, then a Predictamancer, who had always wanted to practice Crokamancy - a specialty that Banhammer would have had
no use for.
Wanda became enthralled with Stanley's power, and Stanley with Wanda, and between the two of them, they hatched a plan to put Stanley in his Rightful Position and Wanda at his side.
First, Stanley would use the Arkenhammer to convince the Gobwins that he was the Chosen One, and that they should
rebel against Saline. Later, after Stanley had consolidated power, he would launch a sneak attack on FAQ and capture Wanda for his own. Wanda, being Predictamancer for FAQ, told Jack to go to a different city when Stanley attacked (or otherwise distracted him), allowing for the city to be overtaken
so quickly. After the attack, Stanley captured Wanda and Jack, taking them back to Gobwin Knob to aide his efforts, while leaving FAQ in ruins.
Why does this make sense?
1) A Predictamancer that can foresee
random patrols should have been able to see Stanley's attack coming. This failure speaks of an inside job, and as Stanley does not have a Predictamancer on his staff, it seems likely that Wanda (the only other FAQ caster we know of aside from Jack) must have been one.
2) Why would FAQ pop a Croakamancer? A nonviolent side would have a dearth of corpses to Uncroak. This, combined with Wanda's facility with other magics (plus other points mentioned before) implies that she served as a different sort of caster for Banhammer - a role she was unlikely to be happy with.
3) Stanley could not have known about FAQ in advance unless he a) had already been there or b) someone had told him about it. Since nobody seemed to know about FAQ aside from Jillian (and she's never met Stanley) it would make sense for one of the two FAQers on his side to have told him at some point in the past. Since FAQers aside from Jillian don't seem to leave the country, Stanley would then have had to wander in on his own.