Activist shareholder Joseph Stilwell often battles with thrifts in which he invests, and now he is taking on the Office of Thrift Supervision itself.
Last month the agency issued a final rule that would let newly converted thrifts tighten the limit on the amount of stock one person can own.
Mr. Stilwell is going to court to try to block the rule change before it takes effect Oct. 1.
In announcing its decision, the OTS said it aims to protect thrifts by preventing a single investor from gaining too much influence.
Currently an investor can own up to 10% of all shares. The new rule would give converting thrifts the option to adopt a charter provision placing this limit at 10% of the publicly traded shares instead.
The rule would apply only to future conversions.
Mr. Stilwell filed a petition Thursday asking a federal court in Washington to set aside the rule change. He claimed that the rule is "arbitrary," "capricious," and unlawful.
"I've read the OTS' rationale, and it's classic bureaucratic gobbledygook," Mr. Stilwell said in an interview Friday.
William Ruberry, an OTS spokesman, said the agency is unaware of any challenge to the new rule.
Mr. Stilwell owns large stakes in four thrift companies and last spring had a very public spat with one of them, Prudential Bancorp Inc. of Pennsylvania. He bought space on a billboard above a busy highway near the Philadelphia company's main office to complain that its directors were trying to adopt a stock benefit plan for themselves without putting the proposal to a vote of the public shareholders. The two sides are still battling.
Such benefit plans have long been a sore spot for activist investors in thrifts — so much so that Spencer Schneider, Mr. Stilwell's lawyer, said the only purpose of the new OTS rule is to make it easier for directors to get approval for the plans.
Converting thrifts often sell only a minority of their shares to the public and retain the rest in a mutual holding company. But the OTS requires the benefit plans to get approval from a majority of the minority shareholders. Thrift executives complain that activist investors try to pressure them by threatening to reject the plans.
The OTS considered changing its rule regarding the plans last year but ultimately affirmed it.
Mr. Schneider said that the same day the rule was affirmed the agency proposed the new limit on the amount of stock one person can own. "It was a huge bone that the OTS threw to the industry when it decided to maintain the majority of the minority rule," Mr. Schneider said. "This is just such a blatant example of how captive the OTS is to the thrift industry. All that this rule does is make it easier for insiders to profit themselves at the expense of shareholders."
In publishing the rule change July 9 in the Federal Register, the OTS rebutted that argument.
"The charter provision does not prevent minority shareholders from voting in opposition to a proposed benefit plan," the OTS wrote. "The charter provision would make it more difficult for a single shareholder to prevent passage of stock benefit plans, but minority shareholders, as a class, continue to have the power to vote down a stock benefit plan."
Robert Davis, the executive vice president of government relations at the American Bankers Association, said the trade group supports the change because many thrifts that convert to mutual holding companies end up battling the "greed-based strategies" of activist investors. He said these investors, eager for a "quick profit," pressure thrifts to go fully public and then later to sell themselves.
"They try to take advantage of an institution when it's at a vulnerable stage of transition," Mr. Davis said.
Since the rule would not be retroactive, Mr. Davis said, investors have no reason to gripe. "If someone is complaining," he said, "it's because they don't want their future actions investing in newly formed mutual holding companies to be limited in a way the OTS feels is in the public interest."
The OTS said the provision's purpose is to minimize "attempts to take unfair advantage" of a stock offering.
It said an investor can buy a significant portion of the minority stock without triggering the current limit. For example, if a thrift issues 30% of its shares to the public, an investor could buy one-third of those shares without exceeding the limit, thus gaining "a significant amount of influence" on any vote requiring the public shareholders' approval.
This is why it decided to let thrifts prohibit investors from buying more than 10% of the publicly issued stock for five years after the offering, the OTS said. An investor who violates the charter provision would not be allowed to vote any stock in excess of the limit.
The OTS excluded the mutual holding company and its employee stock ownership plans from the limit. It said ownership plans do not present the same concern as outside investors do.
The agency would let a thrift adopt the provision before it holds its first minority stock offering, at the time of the offering, or during the five years after the offering closes. But the provision would expire no later than five years after the offering closes.
