Sell now or miss out on an opportunity.
That’s the message that two funds have for directors of Commonwealth Business Bank in Los Angeles.
Tiburon Opportunity Fund and Blue Pine Financial Opportunity Fund II, which collectively own just under 5% of the bank’s stock, are pushing for a sale. The funds’ managers, in a July 13 letter to Commonwealth’s board, expressed concern that the “window of opportunity … is closing” for the Korean-American bank to find a buyer.
“The pool of potential acquirers is shallow, with only a few large Korean-American banks … maintaining the wherewithal to pay Commonwealth shareholders fair value,” the fund managers wrote. “The board should explore partnering with these banks and other larger entities while their higher valuations still enable them to pay full value.”
Efforts to contact Joanne Kim, the $805 million-asset bank’s president and chief executive, were not successful. Commonwealth Business Bank is also known as CBB Bank.
Peter Bortel, who manages Tiburon, said in an interview that Hanmi Financial and BBCN Bancorp – prominent Korean-American banks based in Los Angeles – are among a very small number of banks with the ability to bid on Commonwealth. His concern is that Commonwealth could lose out if those companies find other acquisition targets or decide to take a pause to rebuild their capital levels.
BBCN is in the late stages of acquiring Wilshire Bancorp. Hanmi, which tried unsuccessfully to derail that merger, made overtures to both BBCN and Wilshire last year.
Commonwealth has strong financials, Bortel said, including a good deposit base, clean credit quality and a solid small-business lending operation. Management, however, has been reluctant to take steps, such as buying back stock or listing on a prominent exchange, to improve the bank’s visibility and its stock price.
But the future is uncertain for banks, the managers noted in their letter.
“As quality loans become difficult to find and underwrite at attractive pricing, and general credit quality metrics soften, bank stocks suffer,” Bortel and Josiah Hornblower at Blue Pine wrote. “As the punishing bear markets of the previous two bank stock cycles have shown, and as members of the board have experienced, even profitable franchises like Commonwealth are not immune.”
Commonwealth’s board and management own about a third of the bank’s stock, based on the last proxy statement. “If the board is unwilling to explore and potentially consummate the sale of Commonwealth at a substantially higher price, then we believe the board should buy out all other shareholders at this higher price and fair value,” the fund managers wrote.
Bortel said that the funds could become more involved if the board does not take its letter seriously. One possibly would involve buying more shares to go above 5% before taking an activist stance to pressure change.