Eastern in Mass. should sell itself: Activist investor

• Key insight: Eastern Bankshares is facing pressure to sell from the same activist investor that pushed Dallas-based Comerica to make a deal.
  
• What's at stake: The activist investor argues that Eastern, one of the oldest banks in the country, misallocated excess capital that it generated after going public in 2020.
  
• Forward look: The activist investor plans to communicate with Eastern's board, but also warned that it is prepared to launch a proxy battle.

Eastern Bankshares in Boston is being scrutinized by an activist investor that argues the Boston-based bank has misallocated most of its excess capital and should now sell itself.

Three months after urging Dallas-based Comerica to sell, HoldCo Asset Management is now targeting the $25.5 billion-asset Eastern, one of the oldest banks in the country. In an 83-page report published Monday, HoldCo accused Eastern's leaders of diluting shareholder value over the past five years by overpaying for three acquisitions, including one that hasn't closed yet, and by pursuing securities restructurings that have "destroyed capital in order to juice earnings."

In the report, HoldCo argued that Eastern should sell itself to a larger bank such as M&T Bank in Buffalo, New York. The South Florida-based activist investor said it plans to communicate with Eastern's board of directors, but also noted that it is prepared to launch a proxy battle.

"The damage must stop," HoldCo said Monday in an email to American Banker. "Given Eastern's exceptional deposit franchise, a sale should be seriously explored."

A spokesperson for Eastern, which was a mutual holding company until it went public in 2020, did not immediately respond Monday to a request for comment. M&T declined to comment.

Investors seemed to support the proposal to sell. Eastern's shares were up more than 3% as of mid-afternoon Monday.

HoldCo's report on Eastern comes two weeks after Comerica agreed to sell itself to Fifth Third Bancorp in Cincinnati. The blockbuster deal, which is set to close in the first quarter of 2026, is the largest bank merger-and-acquisition transaction to be announced so far this year. 

While Comerica CEO Curtis Farmer told American Banker that external pressure did not factor into the bank's decision to sell, analysts and others seemed to think it did play a role.

At the crux of HoldCo's complaints about Eastern is the massive amount of capital that the Massachusetts bank generated when it became a public company. Eastern raised $1.8 billion through an initial public offering.

Eastern had an "unimaginably good" and low-cost deposit franchise and, following its IPO, "super capital ratios" that were about three times as high as those of its peers, according to the report. 

But in the five years since the bank went public, Executive Chairman Bob Rivers, who was Eastern's CEO at the time of the IPO, has "managed to fully deploy nearly all of that excess capital through an array of acquisitions and securities restructurings" — so much so that once Eastern closes its $490 million acquisition of HarborOne Bancorp in Boston, "there should be almost no excess capital" above the bank's stated target capital ratio of 12%, HoldCo stated in the report.

In addition to the HarborOne deal, which is expected to close around Nov. 1, Eastern acquired Century Bancorp in 2021 for $642 million and Cambridge Trust in 2024 for $528 million. On the same day that Eastern said it would buy Cambridge, it announced plans to sell its insurance division.

The acquisitions helped push Eastern's assets to $25 billion. With the HarborOne acquisition, which was approved by regulators last month, its assets are expected to hit $30 billion.

Mark Fitzgibbon, an analyst at Piper Sandler who covers Eastern, said in a research note Monday that while it's understandable that HoldCo wants to maximize shareholder value, Eastern is likely to want to "go it alone." He said the company is "finally starting to make some progress in driving financial performance metrics higher" and that, with the HarborOne deal lined up, it now "has the scale … necessary to successfully compete and drive acceptable results."

Read more about bank M&A here: https://www.americanbanker.com/tag/mergers-and-acquisitions

M&T, which historically has been an active acquirer, is open to doing another bank deal, but it would have to be focused on building density in the markets in which it already exists, Chief Financial Officer Daryl Bible told analysts last week during the bank's third-quarter earnings call.

M&T's most recent purchase was the $7.6 billion acquisition of Peoples United Financial in Bridgeport, Connecticut. That deal closed in April 2022, more than a year after it was announced, and extended M&T's reach into the greater Boston and New England markets.

"I'm sure an acquisition will come at some point down the road," Bible said on last week's call. "I'm not sure when that's going to be."

Catherine Leffert contributed to this article.