FILE PHOTO: FILE PHOTO: A branch location of Fifth Third Bank is shown in Boca Raton, Florida, January 21, 2010. REUTERS/Joe Skipper/File Photo/File Photo

By David French and Svea Herbst-Bayliss

NEW YORK (Reuters) -This month's $10.9 billion sale of Texas-headquartered Comerica to Fifth Third Bancorp, spurred by a small South Florida-based hedge fund, has Wall Street primed for corporate activists to further juice a buoyant deals market.

The highly regulated U.S. banking sector hasn't historically attracted much attention from Wall Street's corporate agitators, but HoldCo Asset Management is challenging the status quo after successfully pressing Comerica to put itself up for sale earlier this year – and it has more regional banks in its sights.

HoldCo, founded in 2011 and currently with about $2.6 billion in assets under management, is now pressing for a sale at Eastern Bankshares. At First Interstate and Columbia Banking System, HoldCo wants major strategy shifts. If no changes are made, the banks face board challenges and a push to sell.

The industry was already ripe for consolidation with pent-up demand and friendlier capital and antitrust reviews under the Trump administration.

The Bank of New York Mellon's spurned summer takeover approach for $24 billion-valued Northern Trust was an early show of banks' new-found confidence to pursue big deals. And on Monday an agreement by Huntington Bancshares to buy Cadence Bank for $7.4 billion - its second notable acquisition in under four months - proved regional lenders can now strike multiple transactions in quick succession.

Deal advisors say the conversation within boardrooms and the wider banking industry is increasingly focused on the specter of lesser known investors like HoldCo, which held only 1.8% of Comerica's stock, pushing for changes, which is sparking a new-found nervousness at even the best-run banks.

Bankers and lawyers who work with corporations to help stave off attacks from unhappy shareholders say more campaigns, including those that push for an outright sale, are in the works.

Late on Monday, another Florida-based activist fund, PL Capital, told Horizon Bancorp that it has lost confidence in the board and management and the bank, which operates in the Midwest, should be sold.

"An ‘M&A Wave’ which will permanently alter the banking landscape has begun. This is Horizon’s best opportunity to maximize shareholder value and recover the value destroyed by Horizon’s prior mismanagement," PL Capital said in a presentation.

Horizon Bancorp did not respond to a comment request. First Interstate and Columbia Banking did not respond to comment requests.

"The fact that there is more M&A activity, and more deals getting done, means there's a viable option (for activists) to push for," said Sven Mickisch, a partner at law firm Simpson Thacher & Bartlett.

HoldCo could not be reached for comment.

FRAGILE CONFIDENCE RAMPS DEAL PRESSURE ON WEAKEST

Investors' faith in regional banks has proven fragile. The recent flare-up of angst over credit quality, stemming from high-profile losses including at Jefferies , Zions Bancorporation and Western Alliance, threatens to be the most significant test of regional bank confidence since the 2023 panic which triggered the collapse of Silicon Valley Bank and two other lenders.

Announcements of charges for bad loans have been punished by investors: the KBW Regional Bank Index, which tracks smaller U.S. lenders, fell 7% on October 16, its largest single-day decline since 2023, after Zions disclosed a $50 million loss it attributed to alleged fraud tied to two commercial and industrial loans.

The industry is braced for more turbulence, with JPMorgan CEO Jamie Dimon saying earlier this month of bad loans: “When you see one cockroach, there are probably more".

As well as highlighting the benefits of scale to absorb losses, these recent stock drops have put bullseyes on the regional banks which, despite having two years to fortify themselves, have struggled to match peer performance and prevent repeated losses. This, industry sources say, provides fertile ground for corporate activists.

The HoldCo push on Comerica was already notable even before the sale to Fifth Third was struck. Activists rarely take stakes in bigger banks. When they do, such as ValueAct's positions in Morgan Stanley in 2016 and in Citigroup in 2018, they worked with management for improvements, eschewing campaigns demanding huge changes.

The few activist campaigns against banks in recent years have targeted smaller community banks. In addition to HoldCo, Driver Management and Stilwell Group have been able to take stakes where they get an outsized voice. Driver has agitated at Republic First Bancorp and AmeriServ Financial, and Stilwell pushed for changes at IF Bancorp.

The 53-page presentation HoldCo released in July called out eight banks, saying the investor would push for changes, including sales, if persistent underperformance was not addressed.

In addition to Comerica, HoldCo took issue with Eastern Bankshares and Citizens Financial Group in the Northeast; First Interstate and Columbia Banking System in the western U.S.; KeyCorp and Capitol Federal Financial in the Midwest and Hawaii's Central Pacific Financial Corp.

An Eastern spokesperson said the bank was prioritizing the integration of its pending acquisition of HarborOne Bank, capturing organic growth opportunities and returning capital to shareholders, with no further M&A anticipated in the near term.

Citizens and First Interstate declined comment. The other banks did not respond to comment requests.

BANK CEOS STILL DICTATE THE FUTURE

Regional bank boards can find themselves beholden to the CEOs' views, especially when pitted against outsiders pushing for sales that could see cherished bank identities, services or local collaborations disappear.

Pressure from activist stockholders could help sway executives and boards to reconsider independence.

By targeting larger regional banks, with big-name investors and analyst followings, HoldCo, which has a history in agitating at banks, can also build a groundswell of support for change to counter internal resistance. In its Comerica presentation, for example, HoldCo cited disquiet from research analysts including respected Wells Fargo analyst Mike Mayo.

But with M&A volumes ramping up, most bank CEOs would rather buy another bank than get acquired and risk losing their coveted job, people who advise on bank transactions said.

Eastern's management, for example, seemingly left the door open to potential future acquisitions on last week's earnings call, noting they could be considered if the opportunity arose and it were in the best interest of shareholders.

"Where are the CEOs, in terms of passing the torch, can be one of the most important factors in bank M&A," said Tannon Krumpelman, partner in the financial institutions group at Solomon Partners.

"Especially for the bigger deals, it is often driven by succession planning, ego and individual personalities versus everything else," he said.

(Reporting by David French and Svea Herbst-Bayliss in New York. Editing by Dawn Kopecki and Anna Driver)