"As a practical matter, you cannot make a hostile approach to a bank," said Christopher Whalen, senior managing director of financial institutions ratings with the Kroll Bond Rating Agency. "Activism isn't effective with big banks because of the Bank Holding Company Act."
The act is a 60-year-old law that requires the buyer of a large commercial bank to get various approvals from a veritable alphabet soup of regulators, including the Fed, the Treasury Department's Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and some state regulators. Whalen suggested it would take up to a year to even get a bid in, never mind getting a target to go along with it.
And then, there's Warren Buffett, the easy-does-it, buy-and-hold investor who owns massive stakes in some of America's biggest banks and who's rarely inclined to go along with a campaign to rattle management's cage. Through his company Berkshire Hathaway, Buffett's clout extends widely among shareholders, and a nod from the Oracle of Omaha is sometimes enough to swing a key vote in a bank's favor.
A representative for Buffett could not be reached for comment.
But many Wall Street banks, Mayo points out, have underperformed even their own modest expectations. He called on investors, activist and otherwise, to implement what he called "the Mayo Rule" — any bank with single-digit return on equity should expect to see an activist calling for change.
Should hedge funds' traditional dividend strategy begin to slow, more may come around to "the Mayo Rule."