In this articleCOLBBKUFollow your favorite stocksCREATE FREE ACCOUNTMisha Zaitzeff and Vik Ghei, founders of HoldCo Asset Management, at their Fort Lauderdale, Florida, offices.Courtesy: HoldCoAmerican banks have found an unlikely pair of adversaries in Vik Ghei and Misha Zaitzeff.Since July, the nine-person hedge fund they run from Fort Lauderdale, Florida, called HoldCo, has challenged lenders with over $200 billion in combined assets, demanding that they take swift action or face public campaigns to overthrow their boards and fire their CEOs.The fund notched a victory this month after Comerica, under pressure from HoldCo, agreed to sell itself to rival Fifth Third for $10.9 billion in the biggest bank merger of the year. HoldCo has since announced activist campaigns against two smaller regional lenders, Boston-based Eastern Bank and Billings, Montana-based First Interstate.A fourth bank is now in their sights, CNBC has learned exclusively: HoldCo plans to launch a proxy battle against Columbia Bank, a lender with $70 billion in assets and 350 branches across Western states, unless it can strike a deal with management.HoldCo, with $2.6 billion in assets, is bringing back activism to an industry that has largely been insulated from it since the 2008 financial crisis. The demise of bank-specific hedge funds in the post-crisis years and regulatory resistance to mergers meant that underperforming CEOs faced little discipline from the markets until now, according to Ghei and Zaitzeff.Regional banks have struggled to regain their footing after the 2023 crisis that consumed Silicon Valley Bank and First Republic, leaving them exposed to activists seeking undervalued targets. At the same time, mergers are now viewed as more likely to be approved by regulators in the Trump administration, giving activists like HoldCo a clear exit strategy.Coming from a hedge fund that few outside of banking circles had heard of, HoldCo’s moves have garnered admiration in some corners of Wall Street, while making them a pariah in others.Ghei and Zaitzeff say HoldCo has been banned from attending a banking conference held next month outside Miami by Piper Sandler, an investment bank known for advising regionals on mergers. A spokesman for Piper Sandler didn’t immediately have a comment.The millennial upstarts now find themselves key players in a larger story of industry consolidation. While retail banking is dominated by three giants, JPMorgan Chase, Bank of America and Wells Fargo, the country has more than 4,400 banks, and a long-expected merger wave began this year.Bad incentivesThe HoldCo thesis on regional banks is simple: Many are undervalued because their CEOs have put their own interests above that of shareholders, Ghei and Zaitzeff told CNBC in interviews over the past month.That’s because the CEOs earn millions of dollars more in annual compensation if they grow by acquiring other banks, even if the deals prove disastrous for shareholders, according to the investors. Bank boards mostly operate as rubber stamps for such deals, they say, because directors are often hand-picked by the CEOs themselves.”We’re trying to shame them into doing the right thing,” Ghei, 43, told CNBC. “At some of the banks we own, the CEOs have doubled compensation while their stocks have dramatically underperformed, or even fallen.”On top of that, some of the investment bankers and research analysts that cater to small and medium banks are complicit, because their firms earn fees from mergers, and shareholders are usually silent because they risk losing management access if they challenge bank leaders, said the HoldCo founders.”We feel that the way to rectify this is to publicly shame banks and aggressively pursue things like proxy battles,” Ghei said. “CEOs should be fired, and the boards should be fired, because they rolled the dice and lost; there should be consequences.”Regional banks face pressure to bulk up through mergers to compete with super regionals and megabanks, which have far larger budgets for technology and compliance, according to industry consultants who requested anonymity to speak candidly. Poorly-managed firms are more the exception than the rule, they said.[embedded content]As a group, regional banks have trailed both larger peers and broader stock indexes in recent years, partly because of the hangover from the 2023 tumult. The S&P Regional Banking ETF is still 14% below its 2021 peak, and shares of regional lenders tumbled again this month on concern over a trio of defaults tied to alleged corporate fraud.In April, after bank stocks plunged in the selloff sparked by President Donald Trump’s so-called “Liberation Day” tariff policies, HoldCo began loading up on shares of beaten-up regionals, including Columbia, Citizens Financial and KeyCorp.Those bets kickstarted their recent round of activism and raised their profile: HoldCo “is quickly becoming a household name in both the regional banking space and the world of activism,” analyst Don Bilson wrote in an October 21 research note.The firm’s rise has rattled executives across the U.S. regional banking landscape; several banks have quietly started reviewing their capital plans in anticipation of possible activist scrutiny, according to the industry advisors who spoke to CNBC.HoldCo said it now owns more than $1 billion in regional bank shares.’Best job in the world’Over steak dinners, Zoom meetings and phone calls, Ghei and Zaitzeff began private discussions with a succession of bank CEOs in recent months, hoping to persuade them to commit to their shareholder-friendly actions.When that approach has failed, they’ve gone public, releasing their presentations online and in the pages of the Wall Street Journal and Bloomberg News.It’s a playbook more familiar to other sectors including technology, media and health care, where hedge funds far larger than HoldCo have attempted to sway management with public campaigns.”I wish I could say there’s more nuance involved,” Ghei said. “But you actually need to put the CEO’s job at risk and make this very legitimate case that you can defeat them.”HoldCo’s campaign against Columbia Bank is one of the firm’s largest bets yet. Its position is worth roughly $150 million and makes up about 1.9% of the company’s voting shares.In a 71-page presentation, the activist said that while CEO Clint …
