The combination of a changing regulatory environment and M&A pickup is fueling a fresh wave of shareholder activism in the US banking sector.
Several banks have become targets of public activist campaigns recently. Since July, Down Range Capital Opportunity Fund LP has been urging Cashmere Valley Bank to consider a sale, citing an upcoming CEO transition, weak insider ownership and a unique market position. Also in July, Merion Road Capital Management LLC and Blue Hill Advisors LLC pressed United Bancorp. of Alabama Inc. to return excess capital to shareholders and improve efficiency, after criticizing the bank's recent performance and noting its shares trade at a significant discount to peers. For the past year, HoldCo Asset Management LP has been very active pushing for the sale of several banks, including Comerica Inc., which eventually sold to Fifth Third Bancorp.
As bank M&A returns from depressed levels seen between 2022 and 2024 and the regulatory environment eases, more activists are pushing banks to explore strategic alternatives, advisers told S&P Global Market Intelligence.
"Although M&A-related activity is still below the levels many expected, the less restrictive regulatory environment providing for faster approval timelines, ... together with banks continuing to trade below historical valuation multiples, has caused an uptick in M&A activism in the banking industry," said Meagan Reda, partner at Olshan Frome Wolosky.
Undervalued and underperforming banks are the most frequent targets, according to Kilpatrick Townsend & Stockton partner Gary Bronstein, and a push for a sale often occurs when investors see limited opportunity for improvement as an independent bank.
"The opportunity for M&A in the banking industry is a factor because it's really all about maximizing and optimizing shareholder value," Bronstein said. "There's still a lot of opportunity for consolidation, and I think activist shareholders see that."
Bank investor Sam Haskell of Colarion agreed.
"Where do you make more money over one year, three years, five years? Is it by staying independent, or is it by partnering with whoever it might be?" Haskell said. "If there's a big difference in those numbers and you can't justify staying independent, but you still insist on remaining independent, then … you can expect to hear from activists."
Public vs private engagement
Seasoned activists typically prefer private engagement with bank management, seeking mutual resolution before going public, industry experts said. Shareholders typically shift to public activism when they feel their concerns are being ignored, Haskell said.
Down Range went public with its concerns about Cashmere Valley Bank in light of an undisclosed upcoming CEO transition and belief that there is a lack of viable successors, portfolio manager Bradley Rinschler said in an interview.
Rinschler is skeptical that the board can recruit a qualified CEO, citing the bank's niche, rural location, which could make it difficult to attract top candidates and the board's lack of banking expertise. The shareholder said he believes the only way the bank can unlock value is through a sale. He believes the bank could fetch $150 per share in a sale and could attract at least seven suitors.
"Activism is an arrow in our quiver that we wish we never had to pull," Rinschler said. "We didn't write a letter to throw a hornet's nest into the boardroom."
Cashmere Valley Bank did not respond to S&P Global Market Intelligence's request for comment. However, the bank released a statement acknowledging it had received shareholder communications about a potential sale, but said it would not provide further comment unless deemed necessary or required by law.
What's next
Activists are likely to keep pressuring banks to pursue sales or strategic reviews given the current regulatory environment, Reda said. In addition to M&A-focused activism, new areas may emerge. Haskell said banks that remain on the OTC despite shareholder preferences for a Nasdaq listing could become targets.
Despite these trends, not all industry experts foresee a dramatic surge in bank investor activism. Bronstein expects certain funds, such as HoldCo, to remain active but does not see the floodgates opening.
"There needs to be an opportunity where they feel that by spending the money to become active, it's going to result in a profit for them and their investors," Bronstein said.
