By Jonathan Marino, Senior Staff Writer, Business Insider: Failing any portion of the Federal Reserve’s stress test is bad news for a bank holding company. But, now, with activist investors flush with cash — and markets still chasing new all-time highs — the banks that didn’t pass the second portion of the stress tests, announced late Wednesday, are in for more bad news for their stock and their staff. US units of Deutsche Bank and Santander both flunked the second portion of the test. For both banks, that could mean hard times ahead, and not just because they will likely be prevented from cutting potential dividends to their parent companies, in Europe.
One bank being simultaneously subjected to the Federal Reserve and an activist campaign is Bank of New York Mellon Corp., which Tuesday found itself under pressure from investor Marcato Capital Management to replace its CEO. Another financial services firm, American Capital, found itself under pressure from Orange Capital, an activist, which argued earlier this month that the target was not adequately assessing risk and should take on buybacks (American Capital is not subject to the same Fed examination as Bank of New York Mellon).
Based on today’s results, some are anticipating activists to initiate new calls for management changes at other perceived under-performers. “You can bet activist investors will be poring over today’s results to see what banks could be vulnerable to a shake up,” said Ryan Mendy, COO of The Edge Consulting Group, an equity research firm that focuses on spinoffs and special situations. “BNY Mellon is not the first, we expect to see activism pick up in the sector.”
Conversely, banks that successfully passed both the Comprehensive Capital Analysis and Review and the Dodd-Frank Act Stress Test portions of the Federal Reserve’s examination and analysis, their success will be…