Activist investor HoldCo targets America’s underperforming banks

American 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.

The 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.

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.

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 Stein quadrupled Columbia Bank’s assets through two acquisitions since taking over in 2020, the bank’s shares have fallen 36% during his tenure.

At the same time, Stein’s most recent pay package rose 80% to $6.3 million from his 2021 compensation, the year he began announcing the takeovers.

Columbia Bank declined to comment for this article.

“Being a bank CEO is the best job in the world,” Ghei said. “You have incredible job security because shareholders never show their face and the board feels like they work for you. Everyone’s happy to meet you, and you have a bunch of investment bankers who want to make fees off of you.”

Stein and his chief operating officer flew to Fort Lauderdale in August to meet the activists at a steakhouse two blocks from HoldCo’s offices on bustling Las Olas Boulevard, according to Ghei and Zaitzeff.

Their meal was amicable enough, but the tone changed afterward when it became clear that HoldCo would pursue a proxy battle unless a deal was struck, meaning they would aim to replace directors with their own picks, with the ultimate goal of replacing Stein, according to the HoldCo duo.

In late September, the HoldCo founders delivered their presentation to board members, slide by slide, over a Zoom call.

HoldCo wants Columbia to swear off from doing more acquisitions, instead using excess cash to buy back their own cheap stock for five years, after which they should explore selling themselves to a larger bank.

“They are honestly accomplished people, but not in banking,” Ghei said of the Columbia directors. “I don’t think they understood how bad the transactions they did were.”

The HoldCo partners said they developed their appetite for confrontation in the rough-and-tumble world of distressed debt.

Ghei, a former Goldman Sachs analyst covering financial firms, had figured out a way to make money picking through the remains of banks that had collapsed in the 2008 financial crisis.

Then an analyst at Owl Creek, a hedge fund that specialized in the debt of failed companies, Ghei realized that bonds from the parent company of Washington Mutual were trading at deep discounts because everybody assumed that they wouldn’t be repaid.

But they were ultimately repaid at full price, plus interest, making hundreds of millions of dollars for Owl Creek, according to an American Banker profile of Ghei from 2013.

Ghei would repeat that trade at another Manhattan hedge fund, Tricadia, where he met Zaitzeff, a Brown University computer science graduate who ran models of new financial instruments called subprime collateralized debt obligations.

Tricadia made millions by both creating subprime CDOs and then separately betting that other CDOs would fail, similar to trades from Goldman Sachs and others chronicled in the Michael Lewis book “The Big Short.”

The men immediately hit it off, and in 2011 started their own firm out of “crummy offices” in New York’s Financial District, says Ghei. They called it HoldCo because of their early trades acquiring the debt of 70 holding companies whose banking subsidiaries had failed in the crisis.

Ghei and Zaitzeff say they would spend most of their waking hours over the next 14 years together, angering their wives with their singular focus on batting around ideas for investments until they came to consensus.

“We’re friends, first and foremost,” Zaitzeff, 42, said. “We spend a lot of time debating investments, but we don’t take it personally.”

They believed the bonds of dead banks had value because of assets like tax refunds on corporate ledgers. But the Federal Deposit Insurance Corporation, which took over the failed banks’ subsidiaries, believed it was entitled to the assets, not HoldCo.

So HoldCo battled the FDIC in bankruptcy courts around the country, winning enough of the time on the strength of their arguments to develop a reputation as scrappy fighters.

By 2013, the pair had raised their first institutional funds from an endowment; word of mouth then spread, and they eventually garnered investment from about 20 universities, hospitals and family offices in a series of ever-larger funds.

Their go-anywhere investment style led them to buy the distressed debt of a New Orleans-based lender named First NBC Bank in 2016; the bank had been established a decade earlier to help the city rebuild after Hurricane Katrina.

After realizing that First NBC would soon be undercapitalized, HoldCo shorted the lender and published letters revealing their concerns. The bank’s auditor resigned and the institution was seized by the FDIC. In 2023, the former First NBC CEO Ashton Ryan was sentenced to 14 years in prison for bank fraud.

It was experiences like that led Ghei and Zaitzeff to their dim view of bank management. By proving to themselves that they could identify situations where the market wasn’t functioning like it should, the HoldCo partners had the conviction to take on regional banks this year.

Banks didn’t understand the scope of HoldCo’s ambitions at first, the partners said.

“People were surprisingly nice to us after Comerica,” Zaitzeff said. “When we went after Comerica, they viewed it as us going after a bigger bank. But a lot of regional banks view Eastern and First Interstate as much more like them.”

Bank CEOs may believe that if they don’t engage with HoldCo, they can avoid activist campaigns, Zaitzeff said. The activists believe that’s why they were blacklisted from a recent banking conference.

But the hedge fund has purchased almost 5% of the shares of Bank United, a Miami Lakes, Florida-based lender with $35.5 billion in assets, without speaking to management, according to the pair.

HoldCo plans to wage a proxy battle unless they can come to an agreement with management over increasing shareholder returns. Bank United didn’t immediately return messages seeking comment.

The investors, convinced of the righteousness of their position, say they also plan to publish regular dispatches about banks destroying shareholder value, even when they don’t hold a stake in the firm.

“The problem is that for so many years there’s been no accountability, and the world has gone insane,” Ghei said. “We’re trying to call out bad decisions and incent them into doing the right thing.”

— CNBC’s Gabriel Cortes contributed to this report.