Shareholder Activism Gives 2d Thoughts to New England Mutuals

A chill is creeping into shareholder relations at New England thrifts this winter.

Shareholder activists are stepping up campaigns to force several converted stock institutions to beef up their bottom lines, and their activities are giving pause to mutuals that might be thinking of converting.

This month a second Boston-area thrift has been targeted by shareholder activist Stephen Gordon and his Genesis Financial Partners, while another well-known thrift investor has launched his own salvo at Abington Savings Bank.

In a Dec. 21 letter to John D. Doherty, president and chief executive of Central Co-Operative Bank, Mr. Gordon criticizes its expenses and earnings, citing a weak return on equity of 5.66% for the third quarter and noting that Central spends 80 cents to earn $1.

Mr. Gordon, a former bond trader, noted that high-performing thrifts in New England have ROEs over 10% and efficiency ratios below 60%.

He complained that officials have been unwilling to discuss their ideas for Central and have denied that any problem exists with its performance. And he implied that several of the thrift's directors - insiders with years of service when it was still mutual - aren't accustomed to serving shareholder interests.

"We believe that management must take material corrective action to improve upon what is in our view the bank's chronic inefficiency and unacceptably low earnings," Mr. Gordon wrote, urging officials to hire an investment banker. "We demand that you take better care of our company."

Central officials were not available for comment, and Mr. Gordon could not be reached to elaborate on his letter.

Mr. Gordon has previously targeted Abington Savings Bank and Media, Pa.- based First Keystone Financial Inc. with similar criticism, urging all three institutions to either shape up or sell out. That tactic worked with First Keystone, whose management agreed to concessions in mid-December, but Abington officials have held out and have even refused to give Genesis a shareholder list.

Mr. Gordon has also discussed his ideas for Abington with other investors and area institutions, who then expressed interest in buying the thrift.

Meanwhile, shareholder activist Jerome H. Davis of Greenwich, Conn., is backing the efforts of Mr. Gordon and Genesis at Abington. In a letter to Abington president and chief executive James P. McDonough, Mr. Davis agreed with Mr. Gordon's diagnosis of "the key issues of high overhead and low earnings confronting Abington."

"I would like to voice my support for his ideas and suggested strategies," Mr. Davis wrote. "Further I believe that if management at Abington refuses to take significant corrective action, then a sale of our company would be warranted."

Although Mr. Gordon, based in California, has now targeted two Boston thrifts, executives at other publicly traded institutions in the area say they're not too concerned about Genesis and similar activists, whom they criticize as short-term shareholders seeking a quick buck.

"Obviously they're trying to put the bank in play and it's a difficult thing to deal with," said Stanley J. Lukowski, president and chief executive of Eastern Bank Corp., a mutual in Lynn, Mass. "It's the old thing of whether you have a long-term plan for shareholder appreciation or one which takes some immediate steps to elicit some short-term impact."

Other thrift officials argue that bank managements should always look to enhance shareholder value anyway and shouldn't leave any opening for activist investors to complain.

"If you're conscious of shareholder value and you're paying attention to it, then I don't think the activists are going to come in with ideas that could have an impact on your performance," said Jim D. Carey, president and chief executive of Slade's Ferry Bank, Somerset. "If they could, then you're probably not paying a lot of attention."

But officials at the area's mutuals say such shareholder activism is justification for remaining mutual. And they agreed that it could make those institutions that are considering converting to stock to think twice about it.

"Oh, most definitely," said Robert Verdonck, president of mutual East Boston Savings Bank. "When you have someone from the outside who doesn't understand the institutions and the history and who's just going for the profit motive, that dissuades a lot of people when they see what can happen."

"This is one of the negatives of converting an institution," Mr. Lukowski said. "You put yourself in a position to sustain these kinds of tactics."

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