ABA Banking Journal - November/December 2016 - 41
> INVESTOR RELATIONS
A proactive posture toward investor relations can help bank
management better engage with activist shareholders.
BY DEBRA COPE
nvestors betting on consolidation
as the best path to improve bank
performance have unleashed a
wave of shareholder activism at
banks. In 2015 alone, activists
launched 22 campaigns aimed at U.S.
banks both small and large, up from
eight in 2009, according to Thomson
Reuters activism data. And beyond
these formal campaigns, hedge fund
investing in banks continues to rise.
Usually, an activist shareholder is
seeking to shake things up. They
typically identify companies that are
underperforming, purchase a large
number of shares, and try to obtain
board seats in order to effect major
change. Activists argue they have
an ability to add value, and the data
seem to bear that out. On average,
activist shareholders create 130 basis
points of excess return above the
relevant S&P industry index, Bain and
Company partner Josh Hinkel told
American Banker earlier this year.
However, many bankers and banking
experts see activists as too willing to
trade long-term value for short-term
pricing. "In community banking,
Usually, an activist
shareholder is seeking
to shake things up.
They typically identify
companies that are
purchase a large
number of shares, and
try to obtain board seats
in order to effect major
change ... However,
many bankers and
banking experts see
activists as too willing
to trade long-term value
for short-term pricing.
activism is too often synonymous
with pressure to sell a bank," says
John Gorman, a partner with the
Washington, D.C., office of Luse
But not engaging with activists,
regardless of their goals, is one of
the biggest mistakes a bank can
make, Gorman and others added,
because they are first and foremost
shareholders. "Most banks aren't
prepared, and react in a defensive
or hostile way," says Dory Wiley,
president and CEO of Commerce
Street Holdings, a Dallas-based
investment banking firm. "This is the
absolute worst thing you can do."
"Shareholder activism in banks
tends to be a milder form than
in other sectors because of the
regulatory aspect," Wiley adds.
But, he continues, "Most activists
in banking have pretty legitimate
issues. Banking isn't rocket science,
so it isn't that hard to pinpoint
where management is making
mistakes and needs to improve.
More often than not, it is more of an
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