Activist Funds Ignite M&A Boom in US Banking
This month, the sale of Comerica, a Texas-based bank, to Fifth Third Bancorp has sparked renewed interest in mergers and acquisitions (M&A) within the U.S. banking sector. Valued at $10.9 billion, this deal was driven by the influence of HoldCo Asset Management, a hedge fund based in South Florida. HoldCo’s push for this acquisition marks a significant shift, as the traditionally conservative banking sector becomes a target for corporate activists.
Impact of Activist Funds on M&A in Banking
Founded in 2011, HoldCo Asset Management manages approximately $2.6 billion in assets. Its recent success with Comerica has prompted the fund to pursue additional opportunities within the regional banking sector. The changing landscape is bolstered by a favorable environment for consolidation and increased investor confidence, partly due to lenient capital and antitrust regulations implemented during the Trump administration.
- Notable Recent Deals:
- Huntington Bancshares agreed to acquire Cadence Bank for $7.4 billion.
- Bank of New York Mellon attempted a $24 billion takeover of Northern Trust.
Broader Industry Sentiment
Investor sentiment in regional banks remains delicate. Recent concerns over credit quality have emerged after losses reported by firms such as Jefferies and Zions Bancorporation. The KBW Regional Bank Index experienced a significant decline, dropping 7% on October 16, 2023, following announcements of substantial financial losses within the sector.
The Shift in Shareholder Activism
Corporate activists are now targeting smaller banks more aggressively. HoldCo has identified several banks for potential change, warning that it will advocate for sales if underperformance continues. Among those banks highlighted by HoldCo are:
- Eastern Bankshares
- Citizens Financial Group
- First Interstate Bank
- Columbia Banking System
- KeyCorp
- Capitol Federal Financial
- Central Pacific Financial in Hawaii
HoldCo’s strategy includes leveraging its influence by rallying support from notable analysts, such as Mike Mayo from Wells Fargo. This approach aims to challenge existing management structures and push for changes that might include mergers or outright sales.
Challenges Facing Regional Banks
Regional banks may face internal pressures as activist shareholders push for restructuring. The growing trend of activism suggests that boards of directors might need to reevaluate their independence amid external pressures. Advisors note that many bank CEOs prefer to acquire other banks rather than risk their positions through being acquired.
In conclusion, the recent surge of M&A activity in the U.S. banking sector underscores a transformative phase driven by activist funds. As corporate activism gains momentum, banks are urged to respond strategically to secure both their futures and shareholder interests.
