R&C: Could you provide an overview of shareholder activism in the US banking industry? What overarching trends have you seen in this space during the last 12-18 months?

Main: Historically, activist activity in the US banking industry has been relatively light compared to other industries. The industry is heavily regulated and highly complex operationally, limiting the potential methods for an activist to create shareholder value. Traditionally, activity was concentrated in a few dedicated funds which agitated for the sale of smaller banks to generate outsized returns via M&A vs. operational enhancements or capital restructuring. As US banks remain mired in a challenging operating environment, characterised by low interest rates, fierce competition and heightened regulatory costs, there has been a strong return of bank M&A among the smaller institutions and with it, an increase in activist activity targeting underperforming, many times sub-scale banks. Additionally, in the new ‘too big to fail’ environment of higher capital requirements and increased regulatory costs for larger institutions, there have been select opportunities to target larger banks that could enhance profitability by divesting underperforming or capital intensive subsidiaries, or reducing the size of certain business lines such as investment banking to return capital to shareholders.

Jan-Mar 2016 Issue


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