Eastern Bankshares Changes its M&A Strategy Amidst Activist Pressure
Eastern Bankshares’ CEO, Denis Sheahan, has clearly announced the bank’s new stance on pursuing future mergers and acquisitions (M&A) – they’re not interested. This announcement has come three months after HoldCo Asset Management, an activist investor, criticized Eastern’s M&A strategy and encouraged them to consider selling themselves.
An Emphasis on Share Buybacks
Eastern plans to shift its focus from bank acquisitions towards share buybacks. The Boston-based company has already repurchased 635,000 shares for $12.3 million in the early stages of the year. The bank is also planning to seek board authorization for an additional share repurchase program as the current one is set to expire.
During the bank’s fourth-quarter earnings call, CEO Denis Sheahan stated, “We are not focused on mergers and acquisitions. We believe that focusing on meaningful growth — organic growth opportunities we have in front of us and returning excess capital, not M&A — will deliver meaningful value to shareholders for the foreseeable future.”
HoldCo Asset Management’s Activism
HoldCo Asset Management, a South Florida-based activist investor, has been vocal about its critiques against regional banks, with Eastern Bankshares being one of the targets. The investor group has called out the banks for alleged mismanagement and has urged them to consider selling themselves.
HoldCo has notably criticized Eastern for depleting nearly all of the $30.6 billion-asset bank’s excess capital, which was spent on acquisitions and securities restructurings. The investor group also suggested that Eastern might find a buyer in M&T Bank in Buffalo and threatened to wage a proxy battle if Eastern did not halt bank mergers and securities restructurings and commit to returning capital via buybacks.
A Shift in Capital Management
In response to HoldCo’s pressure, Eastern has initiated a significant change in its capital management strategy. During the fourth quarter, Eastern repurchased 3.1 million shares of common stock for $55.4 million, reflecting 26% of the share repurchase program authorized by its board in October.
The bank plans to reduce its common equity Tier 1 capital ratio from 13.2% at the end of December to around 12%. This goal, according to Sheahan, represents “a pretty significant decline from where it is today” but maintains the bank “with very comfortable and safe capital levels.”
Positive Fourth-Quarter Results
Despite the ongoing discussions with HoldCo, Eastern Bankshares reported positive outcomes for the fourth quarter. The quarter included a partial impact from the bank’s acquisition of HarborOne Bancorp, which added approximately $4.5 billion in loans and $4.3 billion in deposits to the balance sheet. Net income totaled $99.5 million, up more than 63% year over year, thanks to higher net interest income and fee income.
Analysts have generally responded positively to Eastern’s fourth-quarter results. Mark Fitzgibbon, an analyst at Piper Sandler, noted that “having an activist shareholder can be a headline distraction,” but it’s not always a bad thing. He added, “We believe it also likely ensures [Eastern] will continue to aggressively drive operating performance in the right direction.”
In summary, Eastern Bankshares has chosen to prioritize organic growth and share buybacks over M&A activity in the face of activist pressure. This change in strategy aims to create meaningful value for shareholders while ensuring stable and safe capital levels.
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