Historically, banks have not been top targets of activist investors, though Billionaire investor Carl Icahn did pick up American International Group Inc (NYSE:AIG) recently. It now appears that many activist investors are placing their bets on the American banking sector as headwinds whipping through the industry have hasten the decision for industry consolidation.
Several activist investors unveiled 97 campaigns last year in the financial sector in the United States. That was nearly triple the number compared to the year 2009 when a similar campaign was launched on the heels of the financial turmoil that paralyzed the sector. In the current campaigns, 22 were said to be focused on banks, up from 8. The number has been growing annually since.
Hedge funds have been boosting their stakes in lenders throughout America be it big regional lenders or community banks. Industry troubles lately include a lack of returns on equity, tough regulations, and the long-spell of ultra low interest rates. As a result, some could be forced to scout for suitable buyers. For their part, buyers appear to be ready to pay a strong multiple of book value.
Reuters reported that energy-connected loans were the other factor that was pulling down the valuations of some bank, making them vulnerable to a takeover. Jones Day law firm partner Ralph MacDonald, commented that the bigger banks were back in the market for shopping. MacDonald is a a specialist in mergers and acquisitions.
Last year, mergers and acquisitions in the banking sector in America recorded a volume growth of 58% to $34.5 billion. Hedge fund PL Capital indicated that it was raising $200 million with a specific target on banks with a maximum of $50 billion in assets.