ValueAct stake in Morgan Stanley shows challenges in big bank activism

Tue Aug 16, 2016 5:19pm EDT
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By Olivia Oran

(Reuters) - ValueAct Capital Management's newly acquired stake in Morgan Stanley underscores how tempting big bank stocks are for activist investors, but also how difficult it can be for them to move the needle in terms of performance.

The hedge fund firm disclosed on Monday that it had bought $1.1 billion worth of Morgan Stanley shares during the second quarter, giving it a nearly 2 percent stake in the Wall Street bank.

But unlike some other well-known ValueAct investments, the firm said it as of now has no plans to seize a seat on Morgan Stanley's board or demand dramatic shifts in strategy. Analysts say that's because when it comes to big bank stocks, activists have little choice but to place a bet, express support and wait.

"We ... don't see too much of what an activist can do given the dependence on the markets and control the regulators have over things like capital return," Evercore ISI analyst Glenn Schorr said on Tuesday. "Maybe ValueAct's presence will just keep the pressure on - we'll take it."

Activists have been circling big banks for years, but few have been brave enough to take a position. Dan Loeb's Third Point Management LLC, which has dabbled in Morgan Stanley shares, may provide a playbook for what ValueAct will do.

Third Point jumped into Morgan Stanley's stock briefly in 2013, complained about excessive director pay, then exited at a profit soon after. It then invested in Morgan Stanley late last year and again sold the stock after booking quick gains.

In an email, ValueAct Chief Executive Jeff Ubben told Reuters he is "fully supportive" of Morgan Stanley Chief Executive Officer James Gorman and wants to "focus other investors" on the healthy businesses he has been developing. He did not provide a timeframe or price target for the investment.

Activists say agitating for meaningful change at a major Wall Street bank would be a hopeless endeavor because banks are stuck so tightly under the U.S. Federal Reserve's thumb. The Fed decides how they can use capital, the businesses they can pursue and must approve acquisitions or divestitures. Shareholder profits take a back seat to the safety and soundness of the banking system.   Continued...

The corporate logo of financial firm Morgan Stanley is pictured on a building in San Diego, California September 24, 2013.  REUTERS/Mike Blake/File Photo