Activist funds turn attention to banks as new merger wave sets up

“The competition is for our clients and making sure that we’re relevant,” SunTrust CEO William Rogers said. “The good news is we come in with really good strength. We had great performance on our digital platforms, we’ve been making investments to date. So what we get to do is double down on that, so we view the competitive environment as anyone who’s trying to acquire clients.”

Activists may be inspired to push other banks. Already ValueAct has amassed a stake in Citigroup, saying last year that banks are lower risk “than at any time in our investing lifetimes.”

Though ValueAct hasn’t made public calls for changes to Citi’s board or management, the bank has agreed to give the activist investor greater insight into its strategy and operations. The company said last month it entered into an information-sharing deal with ValueAct, giving Ubben’s fund access to confidential data.

Many are looking to see combinations of other large regional banks including Citizens Financial Group, KeyCorp and PNC Financial, said Blue Lion partner Johnny Guerry, who joined the firm earlier this year to assist in its activist practice. While shares of these banks are up so far this year, each are down more than 18 percent over the past 12 months and are trading around a price-to-book value around 1, typically a sign of an undervalued bank.

“A vibrant M&A market leaves underperforming banks with few excuses to not explore strategic alternatives,” Guerry told CNBC on Thursday. “Comerica has been pressured by activists over the past few years, and the success of these transactions only augments the legitimacy of the activists’ calls to find a partner.”

Blue Lion, though small compared with the likes of ValueAct, tried its luck in bank activism in 2018. The first-time activist tried to initiate a proxy fight at HomeStreet, a small regional bank with business in Washington, Oregon, California and Hawaii.

The fund botched its filing, according to regulators, and had to resort to pleading with fellow shareholders to register protest votes against the bank’s incumbent directors. The fund did not comment on its future plans at HomeStreet.

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