'We're trying to shame them': Upstart activist investors target America's underperforming banks

Hedge fund HoldCo, led by Vik Ghei and Misha Zaitzeff, is aggressively targeting regional banks with activist campaigns, successfully pushing Comerica into a $10.9 billion merger and now pursuing proxy battles against Columbia Bank, Eastern Bank, First Interstate, and Bank United. HoldCo argues that many regional banks are undervalued due to CEOs prioritizing personal compensation through poor acquisitions over shareholder returns, advocating instead for share buybacks or outright sales. This activism is reintroducing market discipline to a sector largely insulated since 2008, driving a potential wave of consolidation among regional lenders, particularly as regulatory approval for mergers becomes more likely.

Analysis

HoldCo, a $2.6 billion hedge fund, is aggressively re-introducing activist pressure to the regional banking sector, successfully pushing Comerica (CMA) into a $10.9 billion merger with Fifth Third (FITB). This marks a significant shift, as the industry has largely been insulated from such pressure since 2008. HoldCo has since initiated campaigns against Eastern Bank (EBC), First Interstate (FIBK), Columbia Bank (COLB), and Bank United (BKU), signaling a broader push for consolidation and shareholder value.

HoldCo's thesis asserts that many regional banks are undervalued due to management prioritizing self-serving acquisitions over shareholder returns, as seen with Columbia Bank (COLB) where the CEO's pay rose 80% while shares fell 36%. Regional banks have underperformed, with the S&P Regional Banking ETF (KRE) 14% below its 2021 peak, exacerbated by the 2023 crisis. This underperformance, coupled with a perceived increase in regulatory approval for mergers, creates fertile ground for activist intervention.

The firm's aggressive tactics, including public shaming and proxy battles, are prompting other regional banks to proactively review capital plans. This activism aims to enforce market discipline by demanding share buybacks or outright sales, particularly where boards have historically acted as "rubber stamps." Negative per-ticker sentiment for targeted banks (e.g., COLB -0.8, BKU -0.7) reflects the immediate pressure and uncertainty these campaigns introduce across the sector.

Key Decisions for Investors

• Investors should scrutinize regional bank holdings for activist vulnerability, particularly those with underperforming stock, high CEO compensation, or a history of value-destructive M&A.
• Evaluate potential M&A targets and acquirers within the regional banking sector, considering the increased likelihood of consolidation driven by activism and a more favorable regulatory environment.
• Exercise caution or consider hedging strategies for positions in regional banks currently targeted by HoldCo, as negative sentiment and heightened volatility are likely to persist during activist campaigns.