SCOOP: HomeStreet activist wants ROE targets

This story originally appeared on Activist Insight Online, April 23, 2019.

Dallas-based Blue Lion Capital says HomeStreet has started to address the issues with the bank’s mortgage business it raised last year but now must up its game elsewhere.

In an interview with Activist Insight Online, the hedge fund’s managing partner, Chuck Griege, said he hoped the bank would set return-on-equity targets for its commercial bank and give a timeline for delivering on them when it reports earnings in a week’s time.

HomeStreet has already sold most of its mortgage origination centers and 71% of its mortgage servicing rights, steps it said during a proxy fight with Blue Lion in May 2018 would have “a detrimental impact on future operations.”

Noting the changes, Griege said the bank should explain how it was going to exit the mortgage business altogether. “If you were subscale at $25 billion, you’re really subscale at $7 billion,” he told Activist Insight Online, adding that the bank will likely have to cut costs in order to improve its profitability.

HomeStreet is currently in a quiet period leading up to that announcement and has not yet commented on Blue Lion’s nomination of Griege and Ronald Tanemura. CEO Mark Mason is nearing the end of his ninth year as CEO.

On Tuesday, Griege also gave details of the three shareholder proposals Blue Lion has advanced. The activist wants to separate the chairman and CEO roles at the bank, declassify the board, and require future bylaw changes to be put to a shareholder vote.

Unlike the board nominations, the governance proposals will be nonbinding but ignoring successful proposals is frowned upon by investors and proxy voting advisers.

Blue Lion was a first-time activist last year but saw its nominations deemed invalid by the company and then had its withhold campaign kiboshed by Washington state banking regulators. This time, it changed lawyers and nominated 11 days before the deadline to avoid a repeat. It has yet to hire a proxy solicitor and said HomeStreet has not indicated when it will hold its annual meeting this year, after it moved its nomination window.

And while Griege hasn’t ruled out a settlement, he said Blue Lion felt it needed to nominate to test the company’s seriousness about accepting further changes. “Let’s just say, last year’s shenanigans by HomeStreet left a bitter taste,” he told Activist Insight Online.

HomeStreet’s shares have been flat over the last year and rose 1.4% by 12:15 p.m. EDT on Tuesday, partly fueled by the strong performance of the broader market on a day of major earnings reports.

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