MidSouth in Louisiana pressed to sell itself
A big shareholder at MidSouth Bancorp is pressing the Lafayette, La., company to sell itself.
Jacobs Asset Management, which owns about 7% of the $1.9 billion-asset company’s stock, sent a letter to Chairman Jake Delhomme asking the board to find a buyer. The firm expressed frustration at the slow pace of a turnaround that began when MidSouth fired longtime CEO Rusty Cloutier in April 2017.
Cloutier was dismissed after MidSouth’s board became wary of the company’s exposure to the energy sector. At the time of Cloutier’s departure, energy loans made up nearly a fifth of MidSouth’s loan portfolio.
Jim McLemore, who replaced Cloutier, raised $55 million in additional capital and started to write off loans and whittle down the energy book. MidSouth has lost $20 million since the executive change.
The company still has $32 million in capital from the Small Business Lending Fund years after the interest rate jumped to 9%. It is also operating under a July 2017 written agreement with the Office of the Comptroller of the Currency.
MidSouth reported a $1.5 million loss for the second quarter that included $5.3 million of regulatory remediation costs, $1.3 million for severance and $1 million tied to branch closures.
Plans for a recovery “have gone awry, as the metrics and timelines laid out have already been missed and new problems have emerged,” Sy Jacobs, a managing partner at Jacobs Asset Management, wrote in an Aug. 15 letter to Delhomme.
Jacobs pointed out that MidSouth’s classified-asset ratio was “stubbornly high” at 53% on June 30. He added that, during a May meeting with management, the conversation had shifted “from improved credit, efficiency and growth to necessary and increasingly costly remediation efforts.”
Despite ongoing issues, Jacobs estimated that MidSouth could sell for $19 to $23 a share.
The firm indicated that it could launch a proxy battle at next year's annual meeting if its concerns are not addressed.
Jacobs isn’t the only outsider to point out the sluggish turnaround.
“Progress in correcting the issues at [MidSouth] is taking longer than we initially anticipated,” Brian Zabora, an analyst at Hovde Group, wrote in a research note addressing the shareholder’s letter. “We have lowered our EPS estimates significantly over the past year. Much of the reduction is due to the regulatory remediation expenses and the timing of SBLF repayment and not credit costs.”