Holdco Asset Management Calls for KeyBank Changes
Activist investor Holdco Asset Management has urged KeyBank to dismiss CEO Chris Gorman and implement a “no takeover” policy, as detailed in a lengthy presentation released on Friday.
In the document, Holdco criticized Gorman for what they described as a “mysterious reluctance” to engage in stock buybacks. They expressed concern over his ambiguous statements regarding KeyBank’s plans for mergers and acquisitions.
Holdco pointed to five specific instances this year when Gorman and CFO Clark Khayat seemed to downplay M&A prospects as part of the bank’s overall strategy. For example, during the bank’s third-quarter earnings call in October, Gorman remarked that M&A activity is “quite downhill” and stressed that capital management is a priority, reiterating similar comments made earlier in the year about focusing on internal growth.
These statements appear somewhat contradictory to opinions Gorman expressed about expanding in the Pacific Northwest market. Gorman characterized this region as a logical area for potential growth, which leads to some confusion regarding the bank’s direction.
Holdco also claimed that Gorman’s comments resulted in a 1.6% drop in KeyBank’s stock price on the day the article surfaced. They raised questions about the intentions of Scotiabank, which recently acquired a significant stake in KeyBank. Holdco expressed concern over Scotiabank labeling its investment as “passive,” while discussing a “strategic agenda” that hints at deeper involvement.
With a $142 million stake in KeyBank, representing about 0.7% of the bank, Holdco has made headlines following Dallas-based Comerica’s decision to sell itself to Fifth Third Bank in a substantial deal last October. Holdco is notably frustrated about Comerica’s approach, suggesting they overlooked other potential partnerships.
Concerning KeyBank, Holdco accused the institution of being influenced by Scotiabank, which they claim may be looking to use Key as a U.S. foothold rather than prioritizing shareholder interests.
Holdco argues that investors are calling for either a sale to a larger entity like PNC or Wells Fargo, or a strategy shift that emphasizes buybacks and shareholder returns. They further suggested that more proactive capital management could have prevented the need for a partnership with Scotiabank.
“How did a failed leader in such a short period of time get to a place where he now appears to be holding shareholders hostage?” Holdco remarked in their presentation.
KeyBank has not yet responded to Holdco’s claims, although Gorman is set to present at the upcoming Goldman Sachs Financial Services Conference.
Among other demands, Holdco wants KeyBank to allocate all excess capital to share buybacks after addressing internal growth needs and urged the establishment of an independent capital allocation committee devoid of Scotiabank representatives.
Holdco referenced KeyBank’s $4.1 billion acquisition of First Niagara announced in 2015 and highlighted that at the time, the bank showed little inclination towards pursuing further acquisitions. Gorman, designated as the merger officer for this deal, has seemingly focused on building internal capabilities, as stated by previous CEO Beth Mooney.
Additionally, Holdco remarked that the market is anticipating an active role in M&A from KeyBank, citing an S&P analyst’s comments that suggested Key was a bidder for FirstBank, which ultimately was acquired by PNC.
Holdco insisted that if Gorman was indeed a bidder for FirstBank, this could warrant his dismissal along with the board’s. They also recommended that shareholders refrain from nominating KeyBank’s lead independent director, Alexander Cutler, accusing him of contributing to significant shareholder value loss during his tenure.
