Activist Holders Prod 2 Northeast Thrifts to Shape Up

Shareholder activism has struck two Northeast thrifts.

In one case, a Massachusetts thrift has come into the crosshairs of an aggressive hedge-fund manager. And an upstate New York thrift is facing shareholder lawsuits over its rebuffing of a buyout offer.

Genesis Financial Partners, a three-month-old California- based hedge fund that invests in underperforming thrifts, is demanding concrete improvement at $474 million-asset Abington Savings Bank, outside Boston.

In a Nov. 22 letter to management, Stephen H. Gordon, a former Sandler O'Neill & Partners investment banker who controls the fund, sharply criticized Abington's financial performance, citing unusually high expenses and a weak return on equity.

Mr. Gordon urged management to adopt a series of recommendations within the next quarter to raise the return on equity to about 18% and to cut expenses to less than 2% of total assets in the coming year.

If Abington were sold now, Mr. Gordon wrote, the stock would bring in about $26 a share, a 44% improvement over the current price. But if Abington improves its performance, the stock would probably trade at about $30 a share and could fetch about $40 a share in a sale, a 122% improvement over its current stock price.

"If current management is unwilling or unable to take the necessary steps to significantly enhance the value of the company as an independent entity, at this time Genesis believes that only then would it recommend the sale of Abington."

Genesis, which now owns 6.26% of Abington stock, reiterated its concerns and recommendations in documents filed two days later with the Federal Deposit Insurance Corp.

Although Abington reported that its expenses were 2.83% of total assets at Sept. 30, Mr. Gordon wrote that since 30% of the balance sheet consists of borrowings offset by investments, expenses were actually about 4.08% of the remaining core assets, "which would appear to be nearly the highest in the country for an institution of its size," according to the FDIC documents.

Noting that a major cause of the expenses was probably the company's mortgage banking operation, Mr. Gordon urged officials to reevaluate the operation and shed it if it's unprofitable. He also criticized Abington's efforts to boost fee income, saying cutting costs would add more to the bottom line.

Without implementation of his recommendations, Mr. Gordon wrote, Abington would manage a return on equity of only 9.15% and expenses would still be 3.90% of core assets in the coming year.

Abington officials could not be reached for comment.

Meanwhile, shareholder lawsuits filed in Delaware Chancery Court against Goshen, N.Y.-based MSB Bancorp are accusing management of failing to properly consider a $35-a-share buyout offer from New Jersey's Hubco Inc., while opting instead for a highly dilutive purchase of eight upstate branches from California's First Nationwide Bank.

MSB president William C. Myers was not available for comment.

The MSB suits were filed by shareholder Brian Pohli, and by Irving and Thomas Kahn, trustees of the profit-sharing and pension plans of Kahn Brothers & Co., the largest MSB stockholder, with 10.2%.

According to both suits, which are requesting class-action status, MSB officials ignored or rejected three merger proposals from Hubco over a four-month period in the summer and fall without first disclosing any of the offers to shareholders, breaching their "duty of good faith."

And the thrift's decision to instead buy the branches and conduct a public offering of 1.6 million shares would cause tangible book value to drop from $25 a share to $12 a share, the suit said, adding that it would be "disastrous to MSB's shareholders."

The Kahns accuse MSB directors of entrenching themselves in their positions by issuing only one-third of the company's authorized shares, staggering directorships to hinder a tender offer, barring any single shareholder from voting more than a 10% interest, and requiring an 80% supermajority of both the board and stockholders for any merger. Officials also adopted a shareholder rights plan in 1994, the suit says.

"The defendants were more concerned with the continuation of their offices as directors of MSB than they were with returning to the owners of MSB - its shareholders - the value to which they were entitled," the Kahn suit said.

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