The Weekly Wrap

The European banking sector could see more activism going forward, as banks’ perennial underperformance could prompt more aggressive expressions of activism, including consolidation.

Low interest rates, stringent regulatory requirements, and strong competition from insurgent fintech companies and overseas peers have depressed returns, leading to poor stock price performance. While smaller lenders have been merging for some years now, large ones have been reluctant to do so.

Even so, activists rarely make such demands publicly. Instead, they pushed for less aggressive measures like divestments, breakups, and cost cuts.

Cerberus Capital this year demanded more cost cuts from Commerzbank. Cevian Capital has been pushing Nordea Bank to slash expenses and review its struggling wholesale banking unit. Edward Bramson has been running a multi-year campaign at Barclays to shrink its investment banking unit, while Bluebell Capital Partners this year asked Mediobanca to review its three business lines.

With a recovery in interest rates a distant prospect and COVID-19 leading to a rise in delinquency rates, banks are now forced to act with more urgency.

Morrow Sodali managing director Borja Miranda Johansson told me recently that banks face pressure from their own shareholders to come up with more aggressive plans to improve performance, and short-term solutions like cost cuts might not satisfy investors anymore. “If banks are not able to meet these market expectations, we will see fiercer expressions of activism,” Miranda Johansson said.

Consolidation, meanwhile, could do the trick, with some companies already moving ahead. Italy’s Intesa Sanpaolo acquired UBI Banca earlier this year in a hostile manner, while Spain’s Caixa Bank bought Bankia in September.

European cross-border bank M&A is less likely for now given the lack of continent-wide regulation and potential integration difficulties. However, Intesa CEO Carlo Messina said eventually cross-border M&A will be a necessity to compete with larger U.S. and Chinese rivals.

Indeed, Marco Taricco from Bluebell Capital Partners told me recently that there is a lot of room for domestic deals before embarking on pan-European M&A, which entails more risk. Taricco, who lost a proxy fight for four seats at Mediobanca last month, said there are many avenues for Mediobanca to boost long-term shareholder value, including merging with local peers such as Unicredit or Banca Popolare di Milano.

Elsewhere in the news:

Activist Insight’s inaugural Proxy Fights Report 2020 is available to download, featuring interviews with Morrow Sodali, Reevemark, and Vinson & Elkins, as well as features on who runs proxy fights, and the common defense tactics companies deploy during contests.

Invesco added Trian Partners’ Nelson Peltz and Ed Garden to its board, shortly after the activist disclosed a stake in the asset management firm with the purpose of driving consolidation in the industry.

Engine Capital urged Matrix Service to overhaul its strategy, refresh its board, consider cost-cutting measures, and begin repurchasing shares in an attempt to boost shareholder value.

CoreLogic said it would engage with potential buyers, after receiving higher offers than the hostile bid put forward by Senator Investment Group and Cannae Holdings.

Arch Capital increased its offer for Watford Holdings to $700 million, a price that was backed by rival bidder Enstar Group.

Cobas Asset Management and Lodbrok Capital are seeking further changes at Aryzta, with the activists vying for the removal of four directors shortly after Cobas and Veraison Capital won three board seats. The company largely agrees with the investors, and agreed not to re-nominate the under-fire directors.

Wynnefield Partners said it will seek board seats at MusclePharm after increasing its stake in the fitness nutrition company.

Charity Investment Asset Management wants Suez to hold a special meeting forward to January to allow shareholders to vote on the company’s controversial defense measures in light of a hostile bid from rival Veolia.

A Twitter board committee backed the current management following an impressive third quarter, easing concerns that CEO Jack Dorsey could be heading for an exit. Elliott Management participated in the review.

As always, Activist Insight Online reporters will be diligently covering all developments in activism around the world, and Iuri Struta will be highlighting the most remarkable stories in this roundup. If you have suggestions for improving our coverage, or a tip, you can contact us at press@activistinsight.com.