- Key insight: Diligence Capital Management said it doesn't want to sue Eagle Bancorp yet, but it didn't close the door on doing so if the company fails to make major changes in the next few months.
- What's at stake: The bank has been in repair mode for years, aiming to remix its balance sheet and pare down its commercial real estate loan portfolio.
- Forward look: Eagle announced its own board nominee, Trevor Montano, who will stand for a vote at the bank's shareholder meeting on May 14.
An activist investor has hit a roadblock in its push to overhaul a beleaguered Maryland bank, but the race isn't over.
Eagle Bancorp in Bethesda announced Tuesday evening that it's
The $10.5 billion-asset Eagle said in a securities filing that Diligence's three board nominations and three shareholder proposals are invalid due to their lack of compliance with company bylaws and regulatory rules.
The bank also unveiled its own board nominee, Trevor Montano, who will stand for election at Eagle's shareholder meeting on May 14.
James Abbott, CEO and chief investment officer at Diligence, said he isn't surprised the bank shot down his firm's proposals and board suggestions.
Diligence, which owns about 27,500 shares, or less than 0.1% of the company's outstanding stock, decided to go public with its campaign against Eagle last week. The goal was to ensure that other shareholders saw its suggestions, Abbott said, "because we knew Eagle was denying us that."
"You would think that they would want to work with us, that they'd want to proceed," Abbott said on Wednesday. "The fact that they haven't is a missed opportunity, a huge missed opportunity on the part of Eagle."
The bank declined to comment on Wednesday. Earlier this week, Eagle said in a written statement that it maintains a regular dialogue with its shareholders, including Diligence, and is always open to ideas that support the bank's success.
Eagle has been working for years to claw itself out of
The bank has overhauled its management team and has taken lump after lump as it realigns its balance sheet. Last year, longtime executive Susan Riel said
Abbott, who is resolute that Eagle needs someone with turnaround experience in a top position, said he was disappointed by the bank's choice for its newest board member.
"If there's a bank that needs turning around, it would be Eagle," he told American Banker. "It's hard to think of another bank that needs more help on that front."
Eagle's pick for the board, Montano, doesn't seem to have requisite know-how to mend a bank, Abbott said. He said the nomination is "not inspiring."
Montano currently runs a small private investment firm in Northern Virginia, and has spent 20 years in investment banking and portfolio management — including a three-year stint as chief investment officer at the U.S. Department of Treasury. He also currently serves on the board of Blue Ridge Bankshares. Before Montano joined Blue Ridge's board, the Virginia-based bank ran into regulatory trouble in connection with its fintech partnerships.
Eagle's move to add two new independent directors last fall also didn't give the board enough members with enough bank turnaround experience, Abbott said.
Diligence's discarded board candidates were: Abbott, who previously led investor relations at Zions Bancorp.; David Hooston, who has served as the chief financial officer at four bank holding companies; and Keith Maio, a former chief risk officer at Zions.
The activist investor's three shareholder proposals focused on long-term strategy. Diligence proposed that Eagle keep the CEO and chairman roles separate, at least until the bank hits certain performance metrics. Diligence also wanted Eagle to develop a three-year improvement plan with substantial executive compensation tied to metrics. Third, Diligence said Eagle should "exercise great care" around how it works out problem loans.
The bank has taken multiple quarterly losses in the past couple of years due to large charge-offs and bulked-up provisions for credit losses. Eagle has said the interim pain is part of its plan to
Eagle said Tuesday night that the only way the activist investor will only see its demands on the bank's proxy is through successful litigation.
Diligence isn't ready to duke it out in court. Abbott said a legal battle isn't a good use of anyone's resources.
"The best approach is to focus all time and efforts and money on the actual turnaround," he said. "So we're not interested in spending a lot of time and money and effort to create zero forward progress."
Diligence will aim to keep working with Eagle behind the scenes, though the activist investor says the bank has rebuffed its efforts to engage several times.
Abbott also said that his firm won't give up without a fight. Diligence will work over the next few months to put pressure on the company, and if there isn't "substantial progress," it will take next steps.
Those steps could include taking legal action or proposing a new crop of board members, Abbott said.
"There are a variety of options that we have at our disposal," Abbott said. "And the goal would be to do it in the least disruptive way for the company, so that they can make progress. But if the company is not making progress, then we need to do something disruptive."
