Sovereign CEO Steps Down

Sovereign Bancorp(SOV Quote) said CEO Jay S. Sidhu quit, citing family health related reasons.

The Philadelphia-based bank said Sidhu will serve as non-executive chairman until Dec. 31. The board named Joseph Campanelli CEO and said it would consider him a candidate in its search for a full-time CEO. Campanelli will report to the board through co-lead directors, P. Michael Ehlerman and Juan R. Inciarte.

Last week, Sovereign's outside directors called a board meeting to discuss Sidhu's fate. The unhappy directors wanted Sidhu ousted because he has failed to make good on promises to boost the valuation of the lender, which has $89 billion in assets.

Sidhu reportedly agreed to resign after losing the support of Spain's Banco Santander Central Hispano (STD Quote), which owns a 20% stake in Sovereign. Ever since the news arose that Sidhu could be on his way out, shares of Sovereign have rallied.

Sovereign has been in the limelight for more than a year, after one of its largest shareholders, Relational Investors, called attention to the bank's lagging stock. Last October, the San Diego asset-management firm increased its stake and vowed to add more independent directors on Sovereign's board by nominating two of its own principals.

But just a few days after Relational began agitating for change at the bank, Sovereign announced that it was entering into a three-way deal to sell a 19.8% stake of itself to Santander, and in turn use those proceeds to purchase Independence Community Bank of Brooklyn, N.Y.

The deal sparked outrage from many of Sovereign's shareholders, including Relational and Franklin Mutual Advisers, a unit of Franklin Resources(BEN Quote), because, among other things, it did not require a shareholder vote. As of June 30, Relational owned 6.67% of Sovereign's shares.