Eastern Bankshares Stock Plummets Amid M&A Speculation
Boston-based Eastern Bankshares’ stock witnessed a sharp fall on Friday, following comments from its CEO indicating the potential consideration of mergers and acquisitions (M&A) to benefit shareholders. The bank, which is on the cusp of completing its third bank acquisition in four years, is currently the target of an activist investor who opposes further M&A and securities restructurings.
Understanding the Stake
The bank’s shares were down by over 5% by midday Friday, an occurrence that may have been triggered by fears of a potential merger deal. This comes in light of the intense scrutiny Eastern is facing from an activist investor, whose concerns have been published in an extensive report. The current situation finds the bank’s leadership under fire for allegedly diluting shareholder value through their acquisition strategies over the past five years.
The Role of HoldCo Asset Management
HoldCo Asset Management, based in South Florida, is the activist investor in question. In its 83-page report, it claimed that Eastern overpaid for all three banks it has acquired, including the $490 million HarborOne Bancorp in Boston, a deal set to close on Nov. 1. Apart from this, HoldCo also criticized Eastern for undertaking securities restructurings, which, according to them, have depleted capital to boost earnings.
HoldCo’s stance is that Eastern should sell itself to a larger financial institution, specifically naming M&T Bank in Buffalo, New York. If a sale isn’t viable, the investor group has suggested strategies like refraining from further acquisitions and securities restructurings, and returning all excess capital to shareholders through share repurchases. If the bank fails to reach an agreement on these terms, HoldCo has hinted at a potential proxy battle.
Eastern Bankshares’ Response
During the bank’s third-quarter earnings call, Denis Sheahan, Eastern’s CEO, expressed openness to dialogues with shareholders but refrained from committing to any changes. While the bank would evaluate future merger opportunities, he emphasized that it wouldn’t necessarily proceed with a deal.
Sheahan, who took the helm at Eastern following its acquisition of Cambridge Bancorp last year, expressed a desire to focus on the future and the impending merger with HarborOne. He believes that executing on the bank’s current strategy will deliver attractive shareholder returns. However, he refrained from commenting specifically on the HoldCo report.
Activist Investor: A Positive or Negative Influence?
Despite the uncertainty, some analysts suggest that the presence of an activist investor could be beneficial for Eastern’s shareholders. According to Mark Fitzgibbon, an analyst at Piper Sandler, an activist shareholder could ensure that the bank continues to enhance its operating performance.
Eastern Bankshares’ Financial Performance
Eastern reported a third-quarter net income of $106.1 million, a significant improvement from the $6.2 million loss reported in the same quarter last year. The bank’s total revenue was $241.5 million, up from $203.4 million in the year-ago quarter. Net interest income and fee income also saw an increase, with wealth management assets under management reaching a record high of $9.2 billion.
Eastern is not the first bank that HoldCo has targeted. In recent months, it has also targeted Dallas-based Comerica and First Interstate BancSystem in Montana, leading to significant changes in their corporate strategies. For more information on Eastern Bankshares’ situation, visit the source link Here.
