Four months after praising management for acting on its value-enhancing recommendations, the largest shareholder in First Keystone Financial is calling for a sale.
Genesis Financial Partners, a hedge fund based in Newport Beach, Calif., says shareholders could get a 50% premium to the current stock price if First Keystone were sold to a local acquirer.
"A sale of the company could result in far greater value for shareholders than could be reasonably expected from a continuation of the company's current course," Genesis wrote in a press release.
But officials of the Media, Pa.-based thrift, who said they hadn't even heard of the comments until American Banker called, rejected Genesis' demand.
"Our strategy is to build value for all shareholders, not just Genesis," said Donald S. Guthrie, president and chief executive. "We're not going to sell the bank just because one shareholder wants to make a quick turnaround."
Genesis, which holds a 5.625% stake, renewed its criticism just a day after the $270 million-asset thrift released results for the fiscal quarter ended March 31. It earned $480,000, for an 8.22% return on equity.
However, First Keystone revealed that it holds about $3.9 million of leases bought from Syracuse-based Bennett Funding group, a lease securitization company that declared bankruptcy in early April after its chief financial officer was charged with securities fraud.
First Keystone said it has put all the leases on nonaccrual status.
In an interview, Stephen H. Gordon, president of Genesis general partner Gen Fin Inc., said Genesis was satisfied with the earnings. But he blasted First Keystone management for the lease investments. Several hundred banks are estimated to have similar exposure to the Bennett investments.
"These kind of things follow this type of management group," Mr. Gordon said. "We are absolutely uncomfortable with this management group, and we recommend the sale of this bank."
In December, Mr. Gordon had praised First Keystone, the first of four northeastern thrifts to be pressured to improve by Genesis since the fund was started last summer to invest in underperforming banks.
Genesis had vigorously attacked First Keystone for its high costs and poor performance last fall, but management responded in December by agreeing to lay off employees, reclassify securities, and hire an investment banker.