Misha Zaitsev and Vic Guy, founders of Holdco Asset Management, in their Fort Lauderdale, Florida, office.
Provided by: Holdco
An American bank has discovered an unlikely pair of adversaries in Vic Gay and Misha Zaitsev.
Since July, Hold Corps, a nine-person hedge fund run by Fort Lauderdale, Florida, has challenged lenders with more than $200 billion in assets, demanding that they act quickly or launch a public campaign to overthrow their boards and fire their CEOs.
The fund scored a victory this month after Comerica, under pressure from HoldCo, agreed to sell itself to rival Fifth Third for $10.9 billion in the year’s biggest banking merger. Holdco then announced an activist campaign against two small regional lenders: Boston-based Eastern Bank and Billings, Montana-based First Interstate.
CNBC exclusively reported that it is now eyeing a fourth bank. Unless an agreement is reached with management, HoldCo plans to launch a proxy fight against Columbia Bank, a lender with $70 billion in assets and 350 branches in Western states.
Hold Co., which has assets of $2.6 billion, is trying to bring activity back to an industry that has been largely inactive since the 2008 financial crisis. Gee and Zaitsev say that in the past years, underperforming CEOs have faced little market discipline, as bank-focused hedge funds disappeared and regulators resisted mergers in the years following the financial crisis.
Local banks are struggling to regain their footing after the 2023 crisis that decimated Silicon Valley Bank and First Republic, leaving them exposed to activists targeting underrepresented targets. At the same time, the Trump administration sees mergers as more likely to be approved by regulators, giving activists like Holdco a clear exit strategy.
The move by Holdco, a hedge fund alumnus virtually unheard of outside the banking industry, has drawn praise on some parts of Wall Street but ostracized elsewhere.
Mr. Gee and Mr. Zaitsev said Holdco was banned from attending a banking conference in a Miami suburb next month by Piper Sandler, an investment bank known for advising local residents on mergers. A spokesperson for Piper Sandler did not immediately respond to a request for comment.
Millennial startups are now central players in a larger story of industry restructuring. Although the retail banking industry is dominated by three giants: JPMorgan Chase, Bank of America and Wells Fargo, there are more than 4,400 banks in the country, and a long-anticipated wave of mergers began this year.
bad incentive
Holdco’s argument against local banks is simple. Many banks are undervalued because CEOs put their own interests ahead of shareholders, Gee and Zaitsev told CNBC in an interview last month.
Investors say growing by acquiring other banks can add millions of dollars to CEOs’ annual compensation, even if the deal is disastrous for shareholders. Bank boards act primarily as rubber stamps on these deals, they say, because directors are often hand-picked by the CEOs themselves.
“We’re trying to shame them into doing the right thing,” Gay, 43, told CNBC. “Some of the banks we own have doubled their CEO compensation even though their stock prices have significantly underperformed or even fallen.”
In addition, some investment bankers and research analysts who serve small and medium-sized banks are complicit because their firms earn fees on mergers, and shareholders typically remain silent because they risk losing control if they challenge bank executives, Holdco’s founders said.
“We think the way to fix this is to publicly shame the banks and aggressively pursue things like proxy fights,” Guy said. “The CEO and the board of directors should also be removed. There should be consequences for rolling the dice and losing.”
Local banks are facing pressure to scale up through mergers to compete with super-regional and megabanks, which have much larger budgets for technology and compliance, said industry consultants who asked not to be identified. He says distressed companies are the exception rather than the rule.
Regional banks as a group have lagged behind larger peers and broader stock indexes in recent years, in part due to the fallout from the 2023 turmoil. The S&P Regional Banks ETF remains 14% below its 2021 peak, and stocks of regional financial institutions fell again this month on concerns about three defaults related to allegations of corporate fraud.
In April, after bank stocks plummeted in a sell-off sparked by President Donald Trump’s so-called “Emancipation Day” tariff policies, Hold Co. began accumulating unfortunate local stocks such as Columbia, Citizen Financial and KeyCorp.
Those bets have fueled recent activity and increased visibility, analyst Don Bilson said in an Oct. 21 research note. Holdco is “quickly becoming a household name in both the local banking and activist circles,” he wrote.
The company’s rise has rattled executives across the U.S. regional banking world. Industry advisers who spoke to CNBC say some banks have quietly begun rethinking their capital plans in preparation for possible activist scrutiny.
Holdco said it currently owns more than $1 billion in local bank stock.
“The best job in the world”
In recent months, Mr. Gee and Mr. Zaitsev have begun private talks with bank CEOs over steak dinners, Zoom meetings and phone calls, hoping to persuade them to take shareholder-friendly action.
When that approach failed, they published and publicized their presentations online and in the pages of the Wall Street Journal and Bloomberg News.
It’s a strategy familiar to other sectors such as technology, media and health care, where hedge funds much larger than Holdco are trying to shake up management with public campaigns.
“I would like to say there is more nuance,” Gee said. “But in reality, you have to put the CEO’s job at risk and make a very legitimate case that you can defeat them.”
Holdco’s campaign against Columbia Bank is one of the company’s biggest bets to date. The company’s position is worth about $150 million and represents about 1.9% of the company’s voting stock.
He said in a 71-page presentation that CEO Clint Stein has quadrupled Columbia Bank’s assets since taking over in 2020 through two acquisitions, while the bank’s stock price has fallen 36% during his tenure.
At the same time, Stein’s latest salary package was $6.3 million, an 80% increase from his 2021 compensation, when he began announcing acquisitions.
Columbia Bank declined to comment for this article.
“Being the CEO of a bank is the best job in the world,” Gee said. “Shareholders never show their faces, and the board feels like it’s working for you, so there’s incredible job security. Everyone is happy to see you, and there are plenty of investment bankers who will try to extort fees from you.”
Mr. Stein and the chief operating officer flew to Fort Lauderdale in August and met with activists at a steakhouse on busy Las Olas Boulevard, two blocks from HoldCo’s offices, Mr. Gee and Mr. Zaitsev said.
The meal between the two sides was amicable enough, but the atmosphere changed afterward when it became clear that unless a deal was reached, Holding would pursue a proxy fight, or seek to replace Mr. Stein on the board with the ultimate goal of replacing him, the two Holding people said.
In late September, HoldCo’s founders gave a slide-by-slide presentation to board members on a Zoom call.
HoldCo is asking Columbia to halt any further acquisitions and use its surplus cash to buy back undervalued shares over a five-year period, after which it should consider selling to a larger bank.
“These are people with an honest track record, but they’re not in the banking industry,” Guy said of Columbia’s directors. “I don’t think they realized how bad the deal they were making was.”
“Don’t take it personally.”
Holdco partners said there was a growing desire for confrontation in the harsh world of bad debt.
Mr. Gee, a former Goldman Sachs analyst who covered financial companies, has come up with a way to make money from the ashes of banks that failed during the 2008 financial crisis.
Then Mr. Gee, then an analyst at Owl Creek, a hedge fund that specialized in the debt of failed companies, noticed that the bonds of Washington Mutual’s parent company were trading at a deep discount because everyone thought they would never be paid back.
But in the end, the full amount plus interest was paid, making Owl Creek hundreds of millions of dollars, according to a 2013 profile of Gee by American Bankers.
Mr. Gee ended up repeating the trade at another Manhattan hedge fund, Tricadia, where he met Mr. Zaitsev, a Brown University computer science graduate who was running a model for a new financial product called subprime debt collateral.
Tricadia created subprime CDOs and later made millions of dollars by separately betting that other CDOs would fail, similar to the trades of Goldman Sachs and others chronicled in Michael Lewis’ book The Big Short.
The two hit it off right away, Gay said, and founded their company in 2011 out of a “shabby office” in New York’s financial district. They called it a holdco after an early deal in which a banking subsidiary acquired the debt of 70 holding companies that failed in the crisis.
Gee and Zaitsev said they would spend most of their waking hours together for the next 14 years, with an unusual focus on considering investment ideas until they reached an agreement, which would anger his wife.
“First and foremost, we are friends,” Zaitsev, 42, said. “We spend a lot of time discussing investments, but we don’t take it personally.”
They believed that failed banks’ bonds had value because of assets such as tax refunds on the company’s books. But the Federal Deposit Insurance Corporation, which took over the failed bank’s subsidiary, believed that the hold company was not entitled to the assets.
So Holdcoe fought the FDIC in bankruptcy courts across the country, winning enough on the strength of his arguments to establish his reputation as a bad guy.
By 2013, the pair had raised their first institutional funding from donations. Word of mouth then spread, and a series of increasingly large funds was born, eventually attracting investments from about 20 universities, hospitals, and family offices.
battles ensue one after another
Their go-anywhere investing style led them to buy a New Orleans-based distressed loan called First NBC Bank in 2016. The bank was founded 10 years ago to help cities rebuild after Hurricane Katrina.
Realizing that FirstNBC would soon be short on capital, Holdco shorted the lender and released a letter outlining its concerns. The bank’s auditor resigned and the bank was foreclosed on by the FDIC. In 2023, former First NBC CEO Ashton Ryan was sentenced to 14 years in prison for bank fraud.
This experience led to Gee and Zaitsev’s gloomy view of bank management. Proving they can identify when markets are malfunctioning gave HoldCo’s partners the confidence to take on local banks this year.
Ashton Ryan (center), the first CEO of NBC Bank.
Source: Nasdaq
The banks initially did not understand the scope of HoldCo’s ambitions, the partners said.
“After Comerica, people were amazingly kind to us,” Zaitsev said. “When we went after Comerica, they saw us as going after the bigger banks. But a lot of local banks look at Eastern Bank and First Interstate Bank the same way they do.”
Bank CEOs may believe they can avoid activist campaigns by not engaging with HoldCo, Zaitsev said. Activists believe that is why they were blacklisted at a recent banking conference.
But the hedge funds bought nearly 5% of Bank United, a Miami Lakes, Fla.-based financial company with $35.5 billion in assets, without talking to management, the men said.
Holdco plans to engage in a proxy fight unless it reaches an agreement with management to increase shareholder returns. Bank United did not immediately return messages seeking comment.
Investors are so convinced of the legitimacy of their position that they plan to publish regular information about how banks are destroying shareholder value, even if they don’t own the company’s stock.
“The problem is that over the years there has been no accountability and the world has gone crazy,” Gee said. “We’re trying to condemn bad decisions and try to get them to do the right thing.”
