An activist investor is calling on HomeStreet in Seattle to consider selling itself if management is unable to improve performance.
Blue Lion Capital, which has engaged in a long-running dispute with the $6.9 billion-asset company, argued in a press release Friday that management should develop a “comprehensive operating plan” to become a top-performing bank rather than “continuing to announce piecemeal and reactionary cost reductions.”
If improvement is unattainable, executives should hire an investment bank and put HomeStreet up for sale.
“Either way, shareholders would finally be rewarded,” Blue Lion said.
HomeStreet did not immediately return a request for comment.
The investor criticized HomeStreet’s recently announced plan to close 18 mortgage offices and cut jobs as inadequate. HomeStreet has said that
Instead, Blue Lion said the company should close any mortgage lending office that is unable to earn its cost of capital. The investor also pushed HomeStreet to sell its single-family mortgage servicing rights, based on claims that the business lacks scale and is based in the expensive Seattle area.
A sale would let HomeStreet buy back up to a fifth of its stock at a time when its shares have underperformed other banks.
HomeStreet’s stock is relatively flat from a year earlier. In comparison, the KBW Nasdaq bank stock index has appreciated by about 14%.
The investor also chided HomeStreet for its plan to close two branches, arguing that almost a third of its branches have an insufficient amount of deposits.
Blue Lion claimed that HomeStreet could trim at least $25 million in annual costs from its commercial bank.
HomeStreet's efficiency ratio at March 31 was roughly 92%. The company has gone through several rounds of expense cuts, including the elimination of 86 positions earlier this year.
“It's undeniable that [HomeStreet’s] shareholders want the company's management and board to proactively and aggressively restructure the bank and its operations,” Blue Lion said in its release. “However, the current pace of change is much too slow given the poor performance of the company and stock over the past five plus years."
Blue Lion has actively criticized HomeStreet, which has bought four banks since 2013, for its focus on mortgages and acquisitions. The investor had planned to nominate two candidates to HomeStreet’s board and submit a proposal to separate the chairman and CEO roles. But HomeStreet invalidated the paperwork.
Blue Lion also asked shareholders to reject two HomeStreet director nominees and to vote against a nonbinding advisory proposal on executive pay. That effort was also invalidated because Blue Lion failed to get the prerequisite approval from the bank’s state regulator.
