Truist Primed for Activist Push on Costs, Governance, Mayo Says

Truist Financial Corp.’s needs to improve expense discipline and governance to win back investors, and it’s “primed” for an activist push as long as those problems linger, according to veteran banking analyst Mike Mayo.

(Bloomberg) — Truist Financial Corp.’s needs to improve expense discipline and governance to win back investors, and it’s “primed” for an activist push as long as those problems linger, according to veteran banking analyst Mike Mayo.

The company “seems overly complacent, tone-deaf to concerns of investors and lacking candor,” Wells Fargo & Co. analysts led by Mayo wrote in a note to clients. “Something has to give.”

Expense discipline emerged as a key concern for bank stocks last year, after guidance on costs from Wall Street mainstays including JPMorgan Chase & Co. and Goldman Sachs Group Inc. rankled shareholders. The turmoil among regional banks earlier this year has only heightened the focus on the performance of financial firms.

Mayo emerged as one of the most vocal critics of the expense projections coming from major US banks and the way they communicated those expectations to investors. He cut his rating on JPMorgan last year to the equivalent of a hold and criticized the largest US bank for “reduced transparency, financial discipline and shareholder consideration.” He then upgraded the stock to overweight, the equivalent of a buy, earlier this year.

Mayo took a similar approach in his critique of Charlotte, North Carolina-based Truist, the sixth-largest US bank holding company by consolidated assets. The stock was little changed at $33.30 at 9:49 a.m. in New York. The firm’s shares are down 23% this year, more than the 11% decline for the KBW Bank Index. Mayo continues to rate Truist overweight.

A Truist representative said the bank had no immediate comment on Mayo’s report.

Mayo cited five specific issues facing the company:

  • Expenses: It’s “time to get expenses under control,” he said, citing increased costs as well as a lack of improvement on efficiency from the two banks that combined to form Truist.
  • Missed financial targets: Mayo cited the company’s stock performance and key performance metrics that missed guidance or are headed in that direction.
  • Compensation and accountability: The incentive-based compensation at Truist “lacks enough realism, accountability and urgency,” Mayo said, with executive-performance rewards coming in higher than expected for 2022.
  • Governance: Mayo and his fellow analysts wrote that Truist’s board is larger than the industry average and in need of a refresh, with the average tenure for a board member coming in at 12 years.
  • Stockholder orientation: Discussion of the bank’s stock price has been absent from the company’s annual letter and earnings calls, Mayo said, with more of a focus on “stakeholders” rather than shareholders in the 2021 and 2022 annual letters.

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