- Key insight: Diligence Capital Management is looking to install three new directors at Bethesda, Md.-based Eagle Bancorp, which reported big losses last year in connection with its outsized commercial real estate portfolio.
- Why it matters: The campaign at Eagle is the latest example of activist investors pushing publicly for change at banks they see as underperformers.
- Forward look: Eagle says it will provide more detail about its board and governance in its upcoming proxy statement.
An activist investor is calling for a board shakeup at Eagle Bancorp, a Maryland-based lender that ran into problems with office loans and is currently searching for its next CEO.
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Diligence Capital Management, which owns 27,500 shares in Eagle, wants the $10.5 billion-asset company to add directors who have bank turnaround experience. As
James Abbott, Diligence’s CEO and chief investment officer, told American Banker that Eagle faces a series of time-sensitive problems. He’s calling for the replacement of James Soltesz as chairman of the board, arguing that Soltesz lacks the requisite experience at this point in time.
“I believe that there are other individuals that are better suited to lead the company who have bank turnaround experience,” Abbott said Monday. “It would be like throwing me, who has zero NFL experience, into an NFL football game and saying, ‘Go try to win.'”
Diligence’s campaign at Eagle is the latest example of activist investors pushing for change at publicly traded banks they see as underperformers. Last year, HoldCo Asset Management publicly took on management at
In an open letter to Eagle’s board last week, Diligence proposed three candidates to be added as directors. Those individuals include David Hooston, who has served as the chief financial officer at four bank-holding companies, and Keith Maio, a former chief risk officer at Salt Lake City-based Zions Bancorp.
Also on the list is Abbott, who previously served as Zions’ director of investor relations and external communications.
Abbott said Monday that Eagle’s management team has mishandled
“It is a substantial miss on estimating and understanding the loss content in their own portfolio. And that’s what we, as shareholders, pay management to do. We pay them to understand those things much more precisely than that,” Abbott said.
Eagle said in a written statement that it maintains a regular dialogue with its shareholders, including Diligence. “We welcome their views and are always open to ideas that may support our success,” the Bethesda, Maryland-based bank said.
The company added that it looks forward to continuing to engage with Diligence and will provide more detail about its board and governance in its upcoming proxy statement.
Eagle’s problems date back several years.
In 2019, the bank’s founder, chairman and CEO, Ronald Paul, resigned amid allegations of improper insider lending. He was later
The COVID-19 pandemic dented occupancy rates at many office buildings, posing particular problems for lenders such as Eagle that had outsized exposure to commercial real estate. Then came the rapid rise in interest rates starting in 2022, which made some existing loans uncompetitive and difficult to offload.
Diligence, which started buying its stake in Eagle last July, began pushing quietly for change back in October. Since then, as Diligence sought to enter into a formal collaboration agreement with the bank, Eagle has rebuffed the activist investor on three occasions, according to the open letter published last week.
In November, Eagle announced that President and CEO Susan Riel, who helped found the bank in 1998, would retire in 2026 following a search to recruit her successor. Eagle hired an executive search firm to assist with the recruitment process and the evaluation of both internal and external candidates.
Abbott said Monday that it’s his understanding that the search firm was looking for individuals with bank turnaround experience, and that a field of 25 candidates was narrowed down to a list of three by January.
One of those three candidates was Hooston, according to Abbott. He expressed frustration that the recruitment process hasn’t moved faster so far this year.
“Time is of the essence,” Abbott said. “We don’t have all day to put somebody in place.”
Eagle did not provide an update Monday on the status of its CEO search.
Diligence originally asked Eagle to expand the size of its board from 10 to 13 directors. In its open letter last week, it called for the replacement of three directors who it said have less experience with bank turnarounds and risk management in the banking industry.
The three directors Diligence is targeting are Benjamin Soto, a real estate transactions attorney; Steven Friedkin, the founder and CEO of a technology firm; and Soltesz, the president and CEO of an engineering firm.
Soltesz has been on Eagle’s board since 2007. He’s been serving as board chair since November, when Riel stepped down from her role as board chair, in addition to announcing her plans to relinquish the CEO job.
Shares in Eagle are down by about 50% since February 2023, but they have climbed 17% so far this year.
The company’s stock price rose sharply in January after the bank reported fourth-quarter net income of $7.6 million, which followed cumulative net losses of $137 million over the two previous quarters.
