Upstart hedge fund Palisair Capital Partners has launched a proxy battle to force the board of 1st Century Bancshares to pursue acquisitions and other financial maneuvers in an effort to boost the bank company’s share price.
Palisair managing director Zachary James Cohen this month nominated himself to the board of directors.
If elected at the shareholders meeting on May 29, Cohen will demand the board hire an investment banking firm to evaluate opportunities to purchase boutique banks and troubled mortgage lenders.
Cohen also wants the bank to explore other financial alternatives such as special dividends, a large share repurchase, and even an outright sale of the bank.
First Century’s board unanimously rejected Cohen’s nomination, claiming the 28-year-old hedge fund manager “lacks the experience, maturity, judgment and temperament necessary” to serve on the board.
“Cohen’s ill-conceived ideas amount to treating your company like a hedge fund rather than (a) prudent and successful commercial bank,” said 1st Century executives Alan Rothenberg and Jason DiNapoli in a letter to shareholders on May 8.
Cohen hit back a week later accusing Rothenberg, a civic leader, of excessive use of stock options and nepotism in the bank’s hiring practices.
“Mr. Rothenberg has abused our valuable capital to authorize up to 27 percent of our shares for stock options to management and the board, which is far in excess of 1st Century’s competitors, and employs his son Richard Rothenberg as Managing Director of Business Development, despite his son’s lack of direct banking experience,” Cohen wrote in an open letter to shareholders.
In an e-mail response to the Business Journal, 1st Century called Cohen’s accusations “meritless and not worthy of comment.”
First Century is a business bank that focuses on small and middle-market businesses, professional service firms, high net worth individuals and real estate investors. Founded four years ago, it operates from a single location near Century City. It has about $259 million in total assets, and in the first quarter it reported net income of $206,000, up 26 percent from a year earlier.
Its chairman, Rothenberg, is a lawyer who is chairman of the Los Angeles Sports Council, which works to bring major sports events to Southern California. He founded Major League Soccer; the league’s champion is awarded the Alan Rothenberg Trophy.
Palisair was founded less than a year ago. In February it purchased nearly 600,000 shares of 1st Century for about $4.5 million, making the hedge fund the largest individual shareholder with about 6 percent of the outstanding shares.
Palisair’s large share purchase briefly pushed the price of 1st Century shares to a 52-week high of $8.10, but the stock lately has traded for less than $6. Its stock is traded on the over-the-counter Bulletin Board.
With total risk-based capital ratio of 28.6 percent, 1st Century is well positioned to pursue acquisition and investment opportunities in the market, Cohen said.
“When you have excess capital on your balance sheet and you have been conservative in a strong economic environment, it gives you a lot of flexibility,” he said.
