Bank of America might be better off divided, rather than as a union.
On Thursday, Mike Mayo, a prominent Wall Street analyst and often critic of the big banks, said that he supported a shareholder proposal to force BofA (BAC) to consider breaking itself up. Mayo said that a number of instances, including the most recent bank stress test, suggest the bank would be better off if it were smaller. Mayo also said his analysis suggests that the bank’s divisions, like investment banking and retail branches, would be worth as much as 25% more if they were broken up into separate companies.
Mayo’s report follows a shareholder proposal that BofA more seriously consider breaking itself up. The bank fought to exclude that proposal from being put to a vote at its upcoming shareholder meeting. But the SEC ruled that BofA had to include the breakup proposal on its proxy alongside other proposals that the bank’s management supported.
“Over the past few years, Bank of America has simplified,” says Mayo, who rates B of A’s shares a “sell,” and has for the past few years. “The question remains whether the bank has simplified enough given mishaps and red flags.”
Bank of America is the latest bank to be hit by renewed talk of downsizing. Banks have been under pressure to break up for a while, first from populist groups and politicians right after the financial crisis, and then by some regulators. What is different now is that the calls for breaking up are coming from inside the house, so to speak.
In February, Goldman Sachs’ top bank analyst Richard Ramsden said that JPMorgan Chase would be better off if it were split up. JPMorgan CEO Jamie Dimon has since defended his bank’s business model to analysts and investors, and he has said that he has no plans to break up the bank. But JPMorgan is looking to decrease the size of its investment bank. BofA has also had a number of departures from its investment bank recently, suggesting it may be trying to slim down that division as well.
In his annual letter to shareholders, released this week, Bank of America CEO Brian Moynihan didn’t directly address the shareholder breakup proposal. But he did say that as more U.S. companies operate and manufacture overseas, BofA’s size serves as an advantage.
The shares of the biggest banks have been duds recently, which could be the impetus for the latest calls for break ups. Shares of BofA, for instance, have fallen nearly 10% in the past year. That compares to a nearly 2% rise for all banks. The stock market in general has been up about 11% in the past year.
The BofA shareholder proposal, which came from an individual investor, does not call for the bank to break itself up. Instead, it is asking that the board of directors form a committee to evaluate whether a break up makes sense. BofA has suggested that shareholders vote against the proposal. The bank’s shareholder meeting is scheduled for early May.
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