Sidhu Targets Atlantic Coast Makeover (8/18/13)
Banker tries shareholder activism for change at Jacksonville bank
By ROBIN SIDELCONNECT
Jay Sidhu is an unlikely shareholder activist.
Seven years ago, Mr. Sidhu was forced out of his longtime position as chief executive officer of Sovereign Bancorp, a large mid-Atlantic lender, in a dispute over the bank's performance.
Now, Mr. Sidhu has just done the same thing to the CEO of a small, unprofitable bank in Florida.
Shareholders of Jacksonville, Fla.-based Atlantic Coast Financial Corp. in June rejected a plan to sell the company's banking unit after Mr. Sidhu voiced his opposition to the deal. Days later, Atlantic Coast's CEO, G. Thomas Frankland, resigned. The board's chairman also stepped down and three board members decided not to run for re-election at the annual shareholder's meeting last week.
"I became an activist because the shareholders were being ignored," Mr. Sidhu, who is a director of Atlantic Coast and owns a small stake in the company, said during a recent interview at a private club in Manhattan.
Mr. Sidhu, who had publicly called for Mr. Frankland's resignation, said the sale plan undervalued Atlantic Coast.
Mr. Frankland couldn't be reached for comment. A spokesman for Atlantic Coast declined to comment on Mr. Sidhu's activism, saying only that "the board heard the vote of the stockholders and is now working to address the capital needs of the company."
"I don't think Tom was doing a bad job, but it is challenging when you have someone of Jay's stature looking over your shoulder," said Christopher Marinac, director of research at FIG Partners, a boutique investment firm that specializes in community banks.
Mr. Sidhu became a powerful force in the U.S. banking industry when he was at the helm of Sovereign, where he orchestrated more than two dozen acquisitions that transformed the distressed Pennsylvania savings and loan into a major regional bank with branches from New Hampshire to Maryland.
But the fast growth also cut into the bank's results, and its stock lagged behind competitors in the mid-Atlantic.
"From a banking standpoint, Sovereign was a below-peer performer," said Joseph Fenech, an analyst at Sandler O'Neill + Partners who followed the company when Mr. Sidhu was its CEO.
Mr. Sidhu survived a 2005 proxy fight launched by Relational Investors LLC, an activist fund led by Ralph Whitworth, but came under fire the next year from Sovereign board members for the bank's poor stock performance. He was forced out in 2006.
After leaving Sovereign, Mr. Sidhu traveled the world. On his return, he set up a private-equity firm with the hopes of investing in banks but didn't end up doing any deals.
Mr. Sidhu returned to regional banking in 2009 when he and a group of investors bought New Century Bank, a troubled lender in suburban Philadelphia that had roughly $350 million in assets.
He changed the name to Customers Bancorp Inc., made a couple of acquisitions and tried to attract customers by paying higher rates on deposits than competitors.
"I don't need to work, but I am having a ball," said Mr. Sidhu, who is 62 years old.
He says he has a simple strategy for Customers Bancorp. "The best way to succeed is to attack the megabanks and they won't even notice the difference" if they lose some customers, he said.
Customers Bancorp now has $3.79 billion in assets and 14 branches in the Philadelphia area, New York, and New Jersey. It listed shares on the Nasdaq Stock Market in June.
The strategy is less certain at Atlantic Coast, where Mr. Sidhu has been a board member since 2010.
A former credit union for railroad employees that transformed itself into a bank, Atlantic Coast was clobbered during the financial crisis and remains bogged down by bad loans. It needs $35 million to meet capital requirements established by regulators.
The bank has $742.2 million in assets and 12 branches in northeastern Florida and southeastern Georgia. It reported a second-quarter net loss of $1.6 million, or 62 cents a share, compared with a net loss of $3 million, or $1.20 a diluted share, in the year-earlier period.
Mr. Sidhu, who owns about 4.5% of Atlantic Coast, said its proposed sale to Bond Street Holdings Inc., a company that owns small banks in Florida, undervalued the bank based on the book value of its assets. Shareholders voted in new board members backed by Mr. Sidhu, who said in the interview that finding a new CEO and raising new capital is the company's first priorities.
People who know Mr. Sidhu aren't surprised that he took on Atlantic Coast, describing him as aggressive, resourceful and determined.
"Having gone through our ups and downs, I would never count Jay out," said Mr. Whitworth. Mr. Sidhu said he is confident that Atlantic Coast will find capital and a new CEO by the end of the year.
"Everything is in the works and there will be a stronger foundation," he said.
Write to Robin Sidel at robin.sidel@wsj.com
A version of this article appeared August 19, 2013, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: CEO-Turned-Activist Targets Bank.
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