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Investor aims to revamp Sovereign board

Relational wants better governance, financial results

WASHINGTON -- Relational Investors LLC, Sovereign Bancorp Inc.'s largest shareholder, aims to remove most of the bank's directors unless financial performance and corporate governance improve.

Sovereign, led since 1989 by chief executive Jay Sidhu, could boost its share price by reducing debt and curtailing acquisitions, said Ralph Whitworth, who helped found San Diego-based Relational. Relational executives met with board members of Pennsylvania's second-biggest bank on May 23 to express their concerns and make recommendations, according to a filing with the Securities and Exchange Commission.

''I told them they were a pre-Enron board in a post-Enron world," Whitworth, 49, said in an interview. The collapse of the Houston-based company in 2001 helped prompt Congress to pass the Sarbanes-Oxley Act, aimed at cleaning up malfeasance in corporate boardrooms.

Whitworth founded Relational in 1996 with David Batchelder. The $5 billion money manager, whose 19.9 million shares of Philadelphia-based Sovereign give it a 5.5 percent stake, invests in companies upon deciding that improved management would lift the share price. Its investments include stakes in ConAgra Foods Inc., Mellon Financial Corp., and Computer Associates International Inc.

Sidhu, in an interview, described Relational as traders who have profited from buying and selling his company's stock. The company is trying to improve its performance by converting itself into a commercial bank from a thrift, he said. Thrifts must keep most of their assets in mortgages and mortgage-related securities.

''We recognize that our loan yields could be higher, that our margins could be higher, and we are in the process of achieving that," said Sidhu, 53. ''We are striving to run a prudent, conservative organization."

Sovereign shares rose 29 cents, or 1.3 percent, to $22.55 yesterday in composite trading on the New York Stock Exchange.

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