KeyCorp, Eastern get relief as activist investor backs down

• Key insight: KeyCorp and Eastern Bankshares, which both say they are focused on organic growth, won't face proxy battles this spring from the activist investor HoldCo Asset Management.
  
• What's at stake: The threat of a proxy contest started last year, when HoldCo criticized both banks for allegedly overpaying for acquisitions and diluting shareholder value.
  
• Forward look: HoldCo warned Monday that it will continue to own shares in both banks and keep tabs on their boards to make sure they're protecting shareholders' rights.

The activist investor HoldCo Asset Management is dropping its threat to pursue proxy contests against KeyCorp and Eastern Bankshares, saying the management teams at both banks have made notable changes to better protect the rights of shareholders and increase market value.

In a report Monday, the South Florida-based investment firm praised the banks' leaders, a sharp turn away from the criticism that HoldCo lobbed against Key and Eastern a few months ago when it accused them of making shareholder-unfriendly decisions that led to share dilution.

HoldCo, which had previously threatened to wage proxy battles at both banks if specific changes weren't made, said Monday that it doesn't plan to move forward with any such contests this proxy season.

Still, neither bank is fully in the clear. HoldCo, which remains a shareholder of both companies, warned that it will actively monitor certain activities and "will not hesitate" to take certain actions, including launching proxy battles or advocating for the banks to sell, if the board at either bank pursues "actions inconsistent with [HoldCo's] expectations and/or to the detriment of shareholders."

And while HoldCo gave credit to the $30.6 billion-asset Eastern for making changes to enhance shareholder value, it didn't back down on the idea that the Boston-based bank should ultimately be sold. It restated its view that the ideal buyer is M&T Bank in Buffalo, which it believes is "waiting in the wings."

"In our view, the most likely end-game in a well-run auction process, with M&T as the likely winner," HoldCo said in the report.

An M&T spokesperson said the company has a policy to not comment on market rumors or speculation.

HoldCo's pullback caps a busy six-month period, during which the firm launched public activist campaigns against five banks, including Dallas-based Comerica, whose subsequent sale to Fifth Third Bancorp closed on Feb. 1.

HoldCo disclosed Monday that it also had "behind-the-scenes dialogue" with four other relatively small banks that have since "made material changes" to their strategies — Central Pacific Financial in Honolulu; TrustCo Bank Corp. NY in Glenville, New York; Capitol Federal Financial in Topeka, Kansas; and Heritage Commerce in San Jose, California.

In the case of the five campaigns that were public prior to Monday, "management teams and boards made substantive changes that meaningfully altered the trajectory of their institutions," HoldCo co-founders Vik Ghei and Misha Zaitzeff said in a press release announcing their latest report.

"As a result, we will not be pursuing proxy contests at any of these five banks," they added.

The list of five includes Columbia Banking System in Tacoma, Washington, and First Interstate BancSystem in Billings, Montana, both of which landed on HoldCo's public list last year. Prior to Monday, HoldCo had already said it would not pursue proxy contests at either of those banks.

The change of heart over Key and Eastern comes after both banks' CEOs made comments about how each of them is focused on organic growth, not mergers or acquisitions.

Two months after calling for Key CEO Chris Gorman to be fired for his alleged "extremely poor judgment" in running the bank, HoldCo said in its latest report that it now supports him and believes that his "willingness to change … makes him the right leader for the institution going forward."

In a December report, HoldCo, which owned about 0.7% of Key's common outstanding shares as of April 2025, accused the Cleveland-based bank of paying too much for its 2016 acquisition of First Niagara Financial Group in Buffalo and criticized the deal's 10-year earn-back period.

HoldCo also called Gorman, who led the First Niagara integration prior to his 2020 promotion to CEO, a "handpicked golden child" and called for the bank to take a number of steps, such as swearing off mergers and acquisitions, using all excess capital for share repurchases, terminating Gorman and removing board members who had approved the First Niagara acquisition.

Key declined to comment Monday on HoldCo's decision to not pursue a proxy battle.

Since the December report, the $184.4 billion-asset Key has addressed some of HoldCo's criticisms. Last month, Gorman reiterated the bank's focus on organic growth and outlined a share buyback acceleration plan. Key also announced changes to its board, including the installation of a new lead independent director, which had been one of HoldCo's demands, and two new directors, who will replace a pair of outgoing directors who approved the First Niagara acquisition.

Calling off a proxy fight "probably relieves some pressure and fears that there could be further unflattering releases [about Key] in coming months," Scott Siefers, an analyst at Piper Sandler, wrote Monday in a research note. "As such, as the market digests today's announcement by the activist, we believe it will conclude that this brief activist chapter in Key has come to a close."

In Monday's report, HoldCo also seemed aligned with Eastern's chairman, Bob Rivers, and its CEO, Denis Sheahan, writing that both of them "deserve real respect" for "fully revers[ing] course on an acquisition strategy that went wrong, and that takes real courage."

HoldCo had taken issue with Eastern over shareholder dilution allegedly caused by three acquisitions that Eastern announced over a five-year period. The activist investor accused Eastern of overpaying for each deal and misallocating most of its excess capital.

HoldCo owned about 3.1% of Eastern's common outstanding shares as of May 2025.

Eastern did not immediately respond to a request for comment.

Kevin Wack contributed to this article.