Community banks and small thrifts around the country are using every trick in the book to beat back a wave of shareholder activism.
Institutions have been willing to change their corporate bylaws, use obscure technicalities, and even sue for harassment to thwart outside shareholders.
"There's been a proliferation of shareholder activism, so thrifts are more familiar with what's going on now in the market and how to respond to it," said Stephen G. Skiba, a banking analyst for Chicago Corp.
The tactics - which are perfectly legal - have been most pronounced at newly converted thrifts, where an abundance of new capital has led small institutional investors to pounce on management for performance problems.
For instance, after a Midwestern thrift investor, LaSalle/Kross, announced significant holdings in MFB Financial Corp., Mishawaka, Ind., and Standard Financial Inc., Chicago, the two thrifts accelerated their deadlines for annual meeting agenda items and board nominations, giving the shareholder activist less time to organize.
The result: LaSalle/Kross has backed away from MFB Financial, at least for the time being.
MFB Financial management said the change was a way to stifle shareholder dissent.
"It makes it less likely that somebody will bring business that is inconsistent with our plans," MFB Financial chief executive Charles Viater said of the bylaw change.
In this case, that somebody, Peter Kross, the founder of LaSalle/Kross, has a history of shareholder activism in newly converted Michigan mutuals. In recent years, Mr. Kross pushed Great Lakes Bancorp, Ann Arbor; FSB Financial Corp., Kalamazoo; and SJS Bancorp, St. Joseph, to sell out.
In August, LaSalle/Kross announced a 6.8% stake in MFB Financial, a $225 million-asset institution.
Later that month - in a move Mr. Viater maintains was not spurred by the LaSalle/Kross incursion - MFB Financial enacted bylaw changes that required board nominations to be presented 120 days before the mid-January annual meeting rather than the previous 60 days.
Because of the accelerated deadline, LaSalle/Kross had only a few days, rather than months, to mobilize, said Richard L. Nelson, Mr. Kross' partner.
Further, MFB Financial added a slew of new board qualifications - such as requiring outside directors to have experience in local civic organizations - that invalidated one of LaSalle/Kross' two candidates.
Chris Hargrove, president of Louisville, Ky.-based consultancy Professional Bank Services, questioned altering such bylaw provisions in the face of a perceived threat.
"It looks as if management is entrenching itself," he said.
But Mr. Viater denied that the changes were made to stymie LaSalle/Kross. When MFB Financial asked the partnership in October whether it was interested in selling back some stock at market value, LaSalle/Kross assented. It reduced its stake from more than 120,000 shares to 5,000.
"While we didn't invest into MFB for a buyback, considering the roadblocks they put up and actions they took ... we decided the best thing for the partnership was to sell back shares," said Mr. Nelson, who added that LaSalle/Kross made "a decent profit."
Although the MFB Financial situation seems settled for now, Standard Financial still is staring down LaSalle/Kross, which in October announced a 5.2% stake in the company. It too has changed its bylaws to make it more difficult for LaSalle/Kross to mount shareholder proposals or board nominations.
"We will be prepared for any tactics that aren't in the best interest of our shareholders," said Randall R. Schwartz, general counsel with Standard Financial.
The $2.3 billion-asset Chicago thrift has vowed to remain independent. Mr. Schwartz said that Standard Financial has enlisted Skadden Arps Slate Meagher & Flom, a high-powered New York law firm best known for defending Fortune 500 companies from hostile takeovers.
