NEW YORK: This month’s US$10.9bil sale of Texas-headquartered Comerica to Fifth Third Bancorp, spurred by a small South Florida-based hedge fund, has Wall Street primed for corporate activists to further energise a buoyant deals market.
The highly regulated US banking sector hasn’t historically attracted much attention from Wall Street’s corporate agitators, but HoldCo Asset Management is challenging the status quo after successfully pressing Comerica to put itself up for sale earlier this year, and it has more regional banks in its sights.
HoldCo, founded in 2011 and currently managing about US$2.6bil in assets, is now pressing for a Bankshares.
The industry was already ripe for consolidation, with pent-up demand and friendlier capital and antitrust reviews under the Trump administration.
The Bank of New York Mellon’s spurned summer takeover approach for US$24bil-valued Northern Trust was an early sign of banks’ new-found confidence to pursue big deals.
And on Monday, Huntington Bancshares’ agreement to buy Cadence Bank for US$7.4bil, its second notable acquisition in under four months, proved regional lenders can now strike multiple transactions in quick succession.
Deal advisers said boardroom conversations and wider industry sentiment are increasingly focused on the spectre of lesser-known investors like HoldCo, which held only 1.8% of Comerica’s stock, pushing for change, sparking new-found nervousness even at well-run banks.
Bankers and lawyers who help corporations fend off shareholder activism said more campaigns, including those pushing for outright sales, are in the pipeline.
Late on Monday, another Florida-based activist fund, PL Capital, told Horizon Bancorp it had lost confidence in the board and management, and that the bank, operating in the Midwest, should be sold.
“A mergers and acquisitions (M&As) wave, which will permanently alter the banking landscape has begun.
“This is Horizon’s best opportunity to maximise shareholder value and recover the value destroyed by Horizon’s prior mismanagement,” PL Capital said in a presentation.
Horizon Bancorp did not respond to a request for comment. First Interstate and Columbia Banking also declined to comment.
“The fact that there is more M&A activity, and more deals getting done, means there’s a viable option for activists to push for,” said Sven Mickisch, partner at law firm Simpson Thacher & Bartlett.
HoldCo could not be reached for comment.
Investor confidence in regional banks has proven fragile. A recent flare-up over credit quality, triggered by high-profile losses at Jefferies, Zions Bancorporation and Western Alliance, threatens to be the most significant test since the 2023 panic that led to the collapse of Silicon Valley Bank and two other lenders.
Announcements of charges for bad loans have been punished by investors. The KBW Regional Bank Index, which tracks smaller US lenders, fell 7% on Oct 16, its largest single-day decline since 2023, after Zions disclosed a US$50mil loss attributed to alleged fraud tied to two commercial and industrial loans.
The industry is braced for more turbulence, with JPMorgan chief executive officer (CEO) Jamie Dimon saying earlier this month of bad loans: “When you see one cockroach, there are probably more.”
As well as highlighting the benefits of scale to absorb losses, these recent stock drops have put bullseyes on regional banks which, despite having two years to fortify themselves, have struggled to match peer performance and prevent repeated losses.
This, industry sources said, provides fertile ground for corporate activists.
The HoldCo push on Comerica was already notable even before the sale to Fifth Third was struck.
Activists rarely take stakes in larger banks. When they do, such as ValueAct’s positions in Morgan Stanley in 2016 and Citigroup in 2018, they typically work with management for improvements, avoiding campaigns demanding sweeping changes.
Recent activist campaigns have mostly targeted smaller community banks.
Alongside HoldCo, Driver Management and Stilwell Group have taken stakes where they gain an outsized voice.
Driver has agitated at Republic First Bancorp and AmeriServ Financial, while Stilwell pushed for changes at IF Bancorp.
HoldCo’s 53-page presentation released in July called out eight banks, stating it would push for changes, including sales, if persistent underperformance was not addressed.
In addition to Comerica, HoldCo flagged Eastern Bankshares and Citizens Financial Group in the Northeast, First Interstate and Columbia Banking System in the western US, KeyCorp and Capitol Federal Financial in the Midwest, and Hawaii’s Central Pacific Financial Corp.
An Eastern spokesperson said the bank was prioritising the integration of its pending acquisition of HarborOne Bank, capturing organic growth opportunities and returning capital to shareholders, with no further M&A anticipated in the near term.
Citizens and First Interstate declined to comment. The other banks did not respond to comment requests.
Regional bank boards can find themselves beholden to CEOs’ views, especially when facing external pressure to sell, potentially risking cherished bank identities, services or local collaborations.
Pressure from activist shareholders could help sway executives and boards to reconsider independence.
By targeting larger regional banks with prominent investors and analyst followings, HoldCo, experienced in bank activism, can build a groundswell of support to counter internal resistance.
In its Comerica presentation, for example, HoldCo cited disquiet from respected Wells Fargo analyst Mike Mayo.
But with M&A volumes ramping up, most bank CEOs would rather buy another bank than be acquired and risk losing their coveted role, say advisors on bank transactions. — Reuters
