European banking: What can an activist do?
Hard-ball US-style activism is unlikely to succeed in Europe.
European banks are locking away value. Alas, this is still not fertile ground for activist investors such as RBR Capital Advisors, which is targeting Credit Suisse. Firstly, there are too many other stakeholders – not least the regulators. Secondly, activists must spin a simple yarn to gain widespread support, and big banks are far from simple.
From a regulatory standpoint, the possible downsides are much greater than the upsides. If activism goes well, it will release value for shareholders. If it goes wrong at a big bank, on the other hand, it could have repercussions for the entire economy.
The European Central Bank is pushing for improvements to European banks’ corporate governance standards. This is a goal an activist could appreciate. However, regulators often prefer capital set aside than paid out, so their priorities clash.
Consider the typical demands. An activist might campaign for a firm to sell an underperforming division, or the whole group, to drive economies of scale. For a bank like Credit Suisse, while the latter might spark concerns for systemic risk, the former is also an uncertain course. Splitting up Credit Suisse would not be easy, operationally.