Although the 2012 and 2013 proxy seasons saw increased (and highly publicized) shareholder activism across a range of industries, that trend has not yet made its way to the U.S. banking industry. Over the last two proxy seasons, aside from Nelson Peltz’s well-publicized campaign for action at State Street Corporation, certain negative say-on-pay recommendations from ISS and shareholder proposals on governance matters at some large banking organizations (e.g., the campaign to separate the Chairman and CEO positions and to vote against certain directors at JP Morgan Chase), as well as a handful of examples of shareholder activism at community banking institutions, the banking industry has seen relatively little investor activism by comparison. And no investor has conducted a proxy solicitation against a large banking organization since Relational Investors waged a proxy battle against the management and board of directors of Sovereign Bancorp in 2005-06.
The relative absence of activist campaigns targeting banking organizations over the last several years may be explained mainly by current market conditions in the industry, which are not conducive to investor expectations for realizing a profit from an activist campaign against a bank. Most significantly, the absence of a robust bank M&A market with willing buyers that are able to execute transactions at attractive valuations (i.e., a premium to the market price at which the activist acquired the stock) has undermined one of the key exit opportunities for activist investors in the industry. The bank M&A market has been and continues to be adversely affected by uncertainties around asset quality, capital expectations, the regulatory and legislative environment, and the future prospects for the industry as a whole.