Oh dear. Just a couple of weeks after senior Citigroup executives were revealed to have concerns that the bank could become the target of activist hedge funds, look what happens…
Shares in Citi rose sharply in after hours trading in New York following news that Edward Lampert, the hedge fund manager and architect of the merger that created Sears Holdings, had built an $800m stake in the world’s largest financial services group.
But mergers are unlikely to be what Mr Lampert has in mind. The fear in Citi’s upper echelons is instead that an activist could press for moves to boost the banks’ ailing share price - including a break-up. Critics say the group is too large and too complex to manage and that smaller, specialised companies tend to perform better.
In a regulatory filing, an affiliate of Mr Lampert’s ESL Investments, said it had amassed the holding over the last year leaving it with 15.2m shares, or about 0.3 per cent of Citi’s stock, at March 31.
The tiny size of the stake provides little obvious muscle to press for dramatic changes. One senior executive at a rival bank told the FT it was more likely to be a passive investment. “He may just think the stock is cheap.”
Mr Lampert is best known for becoming Kmart’s largest shareholder after it emerged from bankruptcy thanks to a large position in its distressed bonds and then orchestrating the deal with Sears-Roebuck that created the US’s largest chain of department stores. However, he has also modelled himself on Warren Buffett seeking undervalued companies, and preferring stable businesses with strong brands.
