Activist’s Efforts Fail at French Bank Natixis; Could set off a wave of activism at European Banks.

The following blog was written by Marko Grassmann, an analyst with a large asset management firm based in Munich, Germany. Marko has been closely monitoring activism in Europe for the past few years and will be a regular contributor to our blog with posts on what is happening with shareholder activism within the EU. If you’d like to contact Marko, his email address is marko.grassmann@googlemail.com

David Einhorn, famous for short selling Lehman Bros. shares earlier this year, sent a letter to French bank Natixis on August 19 opposing the Company’s proposed €3.7bn rights issue. Click here to view the letter.

Instead of diluting the share base by around 50%, Einhorn’s New York hedge fund, Greenlight Capital Inc. came up with an alternative proposition: Redeem the 20% cross-share holdings in each of its parent companies - Banques Populaires and Caisses d'Epargne. Shortly after the release of the letter, a second hedge fund, Royal Capital Management, who manages approximately $2bn in assets, endorsed Greenlight’s plan.

The share issue was unveiled after the bank suffered a €1.5 billion loss in the second quarter, mainly related to write-downs on structured products like CDOs, and needed additional capital to meet regulatory requirements. A research analyst from Oddo Securities in Paris said, “[Greenlight’s] proposal is worth considering, but probably comes too late.” The analyst was proven correct a couple of days later.

On Friday, 28.08 the Natixis’ shareholders approved the share offering with an acceptance of nearly 90%. Banques Populaires and Caisses d'Epargne who each own 35% of Natixis’ shares secured the outcome of the vote in advance.

Even though the efforts of Einhorn and Royal Capital were deemed a failure, circular shareholdings have been criticized before and could prove to be the entrée needed for a wave of activism in European banks and other EU companies to come.