Activist investor HoldCo Asset Management urged KeyBank to fire CEO Chris Gorman and adopt a “no acquisitions” policy, in a 57-page presentation published Friday.
The investor faulted Gorman over what it calls a “mystifying reluctance to deploy capital into buybacks,” and alleged double-speak on whether or not KeyBank is considering mergers and acquisitions.
HoldCo cited five instances this year in which Gorman or KeyBank CFO Clark Khayat downplayed M&A as part of the Cleveland-based lender’s strategy.
On the bank’s third-quarter earnings call in October, Gorman said bank M&A is “pretty far down the [list of] capital priorities.” That echoed statements Gorman made at conferences in February and May — noting that M&A is “not an area of focus for me right now,” and that the bank has a “very significant organic growth plan.”
Those comments appear to conflict with how Bloomberg in November interpreted Gorman’s assessment of the M&A picture.
“I think the markets in the Pacific Northwest are very rational markets,” Gorman said in an article that characterized the comments as reflecting a desire to expand there.
HoldCo argued that Gorman’s comments caused KeyBank’s stock to drop 1.6% on the day the article was published.
The investor also called into question the intentions of Scotiabank, the Canadian lender which last year acquired a nearly 15% stake in KeyBank.
“Scotiabank calls it a ‘passive investment,’ yet their language about ‘finding a partner’ to pursue a ‘strategic agenda’ sounds like they’ve acquired the company,” HoldCo wrote Friday. “Board seats, strategic alignment, cross-border collaboration — this looks and sounds like a stealth acquisition.”
HoldCo, for its part, owns $142 million in KeyBank shares, or 0.7% of the company. But its actions this year — particularly, demanding in July that Dallas-based Comerica sell to a larger bank — have put the activist investor in the spotlight.
Comerica in October agreed to sell itself to Fifth Third in a $10.9 billion deal. But HoldCo still groused, saying Comerica ignored an earlier potential tie-up with another suitor — reported to be Regions. HoldCo sued Fifth Third and Comerica last month over what it called a “rushed” deal.
As for Key, HoldCo accused the bank of being “partially steered” by Scotiabank, which it said has “every incentive to use Key as its U.S. outpost — and may, perhaps at Scotia’s urging, be chasing scale instead of delivering what shareholders actually want.”
HoldCo asserts investors want the bank either to sell to a larger bank — namely, PNC or Wells Fargo — or pivot to a strategy that emphasizes buybacks and shareholder returns.
HoldCo further argued that if KeyBank had been more aggressive with its capital management, it wouldn’t have been forced into the Scotia tie-up.
“How did we get to a place where a leader with such a short, failure-laced tenure now seemingly holds shareholders hostage?” HoldCo wrote in its presentation.
KeyBank has not issued a statement in response to the HoldCo deck, but Gorman is slated to speak Tuesday at the Goldman Sachs Financial Services Conference.
Among HoldCo’s other demands Friday is that Key “deploy all excess capital,” after funding its organic growth, toward stock buybacks. It also wants the bank to create an independent capital allocation committee that excludes designees from Scotiabank.
In its presentation, HoldCo cited Key’s $4.1 billion acquisition of First Niagara, announced in October 2015. At the time, Key “had given little indication that it was interested in pursuing acquisitions,” the investor quoted American Banker as reporting.
"We had not talked about being acquisitive and we had said that we had everything we needed to succeed,” KeyBank’s then-CEO Beth Mooney said in a 2017 article.
Gorman served as Key’s designated merger integration executive on that deal, according to LinkedIn.
HoldCo, further, said the market expects Key to be active in M&A now. The investor cited comments from an S&P Global analyst who assumed Key was among the bidders for Colorado-based FirstBank, which PNC eventually won.
“Mr. Gorman should tell the public if Key was a bidder of FirstBank, and if Key did bid, we believe it should be grounds for immediate termination of Mr. Gorman and the entire board,” HoldCo wrote Friday.
At the very least, among its bullet points, HoldCo urged shareholders not to renominate Alexander Cutler, KeyBank’s lead independent director, whom it accused of “presid[ing] over enormous shareholder value destruction during his roughly 25-year tenure on the Board.” HoldCo also asked shareholders not to renominate any director who supported the First Niagara deal.
