One of the interesting characteristics of banks is that, unlike other types of businesses, taking a publicly traded bank private is not really an option. Because banks are so highly leveraged to begin with, it is generally impossible to further leverage them in order for someone to buy out all their stock. In addition, as a general matter, once an investor exceeds certain ownership thresholds, they become subject to regulation by the Federal Reserve, which comes with its own issues and burdens.
All that is to say, once a bank goes public, it stays public until it is acquired.
Occasionally a public bank holding company will go bankrupt or delist from an exchange, but since (i) the former is involuntary, (ii) the latter doesn’t really get rid of public stockholders and (iii) neither are particularly common, I’ll leave those alternatives out of the scope of this post.
Going public has clear consequences. Perhaps the most obvious is having public stockholders. Going public also comes with various obligations and expectations, whether explicit or implicit, clear or less so. Public banks very clearly must comply with the rules and regulations of the SEC and/or other regulatory bodies. Less clear and more implicit obligations include things like interacting and engaging with public stockholders (both current and prospective), caring about the stock price and taking reasonable steps aimed at increasing the stock price and stockholder value and generally displaying some level of accountability to those public stockholders.
Obviously, most banks both accept these consequences and embrace these obligations and expectations. Even if only out of self-interest, management is usually incentivized to try to increase the stock price, whether through improving results and profitability, optimizing capital or otherwise. Management will also engage with current and prospective investors as a way of generating demand for the stock, hopefully increasing its value. Whether or not there is actual accountability, management will give the impression of accountability, if only to create the impression that any missteps or errors that might have caused a decrease in the stock price will not happen again.
Some publicly traded banks, however, rather than accepting the consequences of having gone public and unable to reverse the decision, have opted for a different path. Rather than acceding to the expectations for public companies, they have adopted the mantra of Melville’s enigmatic scrivener, preferring not to.
These reticent public banks tend to have little or no research analyst coverage, shun investor outreach and generally tend to fall between the cracks. In many cases, their initial public offering is a hazy memory—the reasons for it now unclear and the underwriters who made assurances regarding research coverage faded into the mist. For some, this type of effective rejection of their status as a public company is likely intentional, as management teams seek to actively avoid negative research coverage, fly under the radar of activists and keep potential short sellers in the dark and worried about unexpected catalysts. For others, however, it is merely the end result of indifferent performance, unappealing growth prospects, unambitious management and a compliant board.
Having effectively escaped the spotlight many publicly traded banks find themselves in, these ophans, who also tend to have fairly diffuse stockholder bases, can do things and allow conditions to exist that would, for their less bashful peers, attract significant attention and comment from the investor and research community—such as summarily firing a CEO’s heir apparent without cause or allowing capital to build to excessive and inefficient levels.
While these banks’ fate is unclear, they should take note of Bartleby’s end—he starved to death, preferring not to eat.