The largest investor in a Philadelphia thrift is taking his battle with its board of directors to new heights.
Joseph Stilwell has bought advertising space on three billboards near the main office of Prudential Bancorp Inc. of Pennsylvania to protest the directors' looking to adopt stock benefit plans for themselves and management without putting the proposal to a vote of the public shareholders. The billboards, two of which loom several stories over nearby Interstate 95, say the directors are "unpopular" because they want "to adopt multi-million $$$ stock benefit plans and ignore what the public shareholders want."
The billboards then list each of the six directors' names in large, block letters.
Prudential, with $468 million of assets, is the parent company for Prudential Savings Bank, which went public in March 2005 and formed a mutual holding company to retain most of the stock.
Roughly 45% is publicly held and Mr. Stilwell, a well-known activist investor, and his affiliated companies own 9.5% of the publicly traded shares.
Mr. Stilwell has been battling Prudential's directors in court over the stock benefit plans since October, and he acknowledges that billboards are not likely to sway public opinion, let alone a judge or jury.
But even Prudential's chief executive said that the billboards have "upset" directors — which Mr. Stilwell said was partly his intent after a director accused him at Prudential's annual meeting in February of "trying to destroy" the savings bank.
Prudential has called for 4% of its publicly issued shares to be set aside in a restricted stock plan to be awarded to management and directors, who would also be given stock options on 10% of the publicly issued shares.
Mr. Stilwell's main gripe is not that the proposal is excessive — in fact it is fairly standard among mutual holding companies — but that it would be a conflict of interest for the directors to approve the plans that could be used to award the directors themselves stock and stock options.
He contends in a lawsuit he filed in October in the U.S. District Court for the Eastern District of Pennsylvania that Prudential "promised" in the prospectus for its initial public offering that the public shareholders would be the ones voting on the benefit plans.
In an interview last week, Mr. Stilwell said directors approving their own benefits package without shareholder input is "absolutely and utterly wrong in America. If they think otherwise, they'll have to convince a judge."
Prudential has filed a motion to dismiss the suit, saying no such promise was ever made. There has not been a ruling on that motion.
The case could have ramifications for other mutual holding companies seeking to adopt stock benefit plans.
Since a mutual holding company owns the majority of the converted thrift's stock, the directors have the power to control essentially every vote. The one area over which the minority public shareholders have retained some influence is stock benefit plans.
The Office of Thrift Supervision has required converting thrifts to obtain approval on stock benefit plans from the majority of public shareholders since 1994, according to Mr. Stilwell's lawyer, Spencer Schneider.
Prudential is regulated by the Federal Deposit Insurance Corp., which has generally followed the lead of the OTS on interpreting rules of mutual holding companies.
However, Prudential wrote to the FDIC for an interpretation of the rule and received a letter in July 2005 saying mutual holding companies that have been in existence more than a year can get a simple majority of all outstanding shares to approve the stock benefit plans.
Last summer, the OTS published a proposal to allow for that same interpretation. The public comment period closed in the fall, and the OTS has yet to issue a decision on whether to change its rule.
Because of the court case, Prudential has agreed to hold off on a vote for now, said Thomas A. Vento, the president and chief executive officer of both the parent company and the savings bank.
Mr. Vento contends that Mr. Stilwell is really waging a larger war to exert control over the company.
He pointed to Mr. Stilwell's investment record as evidence that his ultimate goal has nothing to do with the stock benefit plans. Mr. Vento claimed that most of the banks or thrifts that have had Mr. Stilwell as an investor eventually merged or sold.
"His modus operandi is to get into the system, to eventually do the second step and sell the rest of the stock, and then to get the company to be absorbed by a larger company and make a nice profit. That's the way he operates," Mr. Vento said.
Mr. Stilwell said he has stated publicly that he would not push for a second step until at least five years after the first one. And he said push is all he would have the power to do. "Nobody can force an MHC to do a second step," he said.
Mr. Stilwell said he has owned stock in a dozen financial institutions, mostly small banks and thrifts, and seven have merged or sold. But he said a merger or sale can create a stronger, more vibrant community bank.
"When a small community bank merges with a neighbor, it's not like they're getting bought by Citigroup," he said.
The billboards went up in March and Mr. Stilwell said he does not know how long they will stay.
But he said he wants to reinforce in the directors' minds that he is not alone in opposing their attempt to vote on the stock benefit plans. As the billboards point out, 75% of publicly held shares being voted this year opted to withhold their support from the directors seeking re-election, as did 71% last year.
Mr. Vento said no customers and no shareholders have approached him about the stock benefit plans since the billboards went up. "We haven't gotten any negative reaction," he said. "He's the only one pushing this thing."
Still, he said, directors are "upset" with the billboards, and even his son, who is not a director but does share Mr. Vento's name, is unhappy.
"He's complaining because he doesn't like his name up there," Mr. Vento said.
