Underperformers beware - an upstate New York investor looking to raise $20 million to buy stakes in community banks says he is targeting those "that either need to be sold or where management needs a good kick in the pants."
Many equity funds are investing in small banks to help them grow, but Leslie Apple, a securities lawyer in Albany, said his "activist fund" would prod the managers and boards at underperforming - but generally healthy - banking companies to make changes.
With some banks, he and his fund colleagues might simply offer advice to the management, but with others, they might be more aggressive, Mr. Apple said. For example, the investors could wage proxy contests for board seats to advocate for management changes or even a sale, he said.
Mr. Apple said he would start selling shares in Montana Capital Partners LP on April 1, with minimum investments pegged at $500,000. A $20 million kitty should enable him to take positions in two, three, or four companies at a time, he said.
Typically, he said, the fund would invest in those with less than $500 million of assets, buying up to 9.9% of the outstanding stock. Targets could include banks or thrifts without good succession plans, those with sluggish boards that do not bring in business, and former mutual thrifts that do not deploy capital adequately after a stock conversion.
Mr. Apple said he would try to initiate discussions with board chairmen and chief executives before doing anything else. However, past experience suggests that offering unsolicited advice would get him only so far, he said.
"What I found surprising was that there were many boards that weren't interested in outside help," he said.
Mr. Apple has been a thorn in the side of about a half-dozen banking companies over the past 10 years, both as an investor and as an attorney for investors.
In 1999 he filed a lawsuit accusing the board of Cohoes Savings Bank of breaching its fiduciary responsibility when it would not consider alternatives to a merger deal it had lined up. Cohoes shareholders rejected that transaction but approved another one months later with the same suitor, Hudson River Bancorp (now part of First Niagara Financial Group), after the terms were revised.
He also waged a proxy fight in 2002 seeking board membership for himself and two others at Capital Bank and Trust Co. in Albany. He lost his bid for the board seats, but around that time Capital Bank brought in a new management team, which cleaned up loan problems and returned the company to profitability after two years of losses.
Mr. Apple also helped organize Empire State Bank, which opened three years ago in Newburgh, N.Y. He now sits on the $93 million-asset bank's board. In organizing Montana Capital, Mr. Apple is joining a fairly small circle of activist bank investors that are well known in industry circles for challenging community bank boards to boost earnings quickly or sell.
John J. Clarke, another bank investor, said plenty of community banks could benefit from an outsider like Mr. Apple stirring things up. However, Mr. Clarke, a partner in Triumph Investment Fund LP in Bedford, N.H., also said a bank's board and managers might choose to ignore Mr. Apple, because he likely would not own a large enough stake to prevail in a proxy fight or force a sale.
"He wants an exit strategy," Mr. Clarke said. "That's the hardest hurdle to get over with shareholders and board members of a community bank who are looking to perpetuate that bank longer than the time horizon for his fund."
