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European banks ‘ripe’ for activist investor engagement

Smaller companies have been the traditional target but that could be set to change

European banks should be prepared for increased activist investor engagement, according to a partner at a leading advisory firm.

Simon Samuels, founding partner of Veritum Partners, has posited that while investor activism has permeated large companies and investment firms, banks have largely remained unscathed. However, he argued in the Financial Times that this may be about to change.

He wrote: “Historically, activism in the bank sector has been held back by several factors, the most significant of which are regulators and size. Regulators must approve anyone who seeks ‘control’ of a bank — with control typically interpreted as owning 10% or more — and the presumption has been that regulators are nervous of allowing activists to get on the share register.”

While activist investors have traditionally gone after smaller companies, Samuels writes that this is no longer a defence for banks, given that firms such as Unilever have a stock market value of over $90bn—larger than any bank in Europe.

He added: “Bankers and shareholders should be alert to the possibility that the activist wave might indeed reach the shores of banking. If it did, then banks in some of Europe’s more fragmented and least profitable markets — Germany, Italy, France, even parts of the UK — could find themselves looking uneasily over their shoulders in just the same way that management of many other European companies have had to for several years. For investors, banks have been cheap for so long it might seem that they are destined to stay that way forever. But a brave activist could quickly change the way the market values them.”

Duty to enforce positive change

The role of activist investors has become more febrile in recent months. Two weeks ago, Expert Investor wrote of how investors representing over $7tn in assets had sent a warning letter to 17 European firms on how board directors could be challenged over the accounting of climate risks.

As we reported, 34 investors wrote to companies including BP and Volkswagen to hint strongly that they were not moving fast enough on climate change. Signatories to the letter reportedly included investment managers Sarasin & Partners, the fund arm of HSBC, French public pension scheme ERAFP, and BMO Global Asset Management Emea. The role of activist investors is one that we have written passionately about on these pages in the last year.

As we wrote in July 2021, “Accountability should be vital to a society.” That article made the salient, still-significant point that when the law fails, shareholders have a duty to enforce positive change through the power they have.

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