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Free to vote

19 March 2015 By Antony Currie

The idea of big U.S. banks breaking up will finally get a public airing. The Securities and Exchange Commission is allowing Bank of America shareholders to vote at the firm’s annual meeting on whether executives should contemplate spinning off the Merrill Lynch investment bank. The watchdog previously muzzled similar requests.

Bartlett Naylor, who has lodged the BofA proposal on behalf of non-profit Public Citizen, isn’t demanding immediate action to offload the investment bank. He simply wants a vote on whether the $170 billion lender should consider setting up a committee of independent directors to make plans for hiving off non-core businesses.

That’s pretty uncontroversial. And BofA and its main rivals have to run many of the numbers internally anyway as part of their so-called living wills, which outline to watchdogs how financial firms reckon they can be broken up in times of crisis. What’s more, the merits of dismembering a company ought to be a regular topic for any board, given directors’ duty to optimize the business for shareholders.

JPMorgan, worth $230 billion, has already taken a stab at defending its banking conglomerate structure. At its investor day last month, boss Jamie Dimon and finance chief Marianne Lake laid out the case for keeping the company’s various operations together. The rationale included $15 billion of revenue from cross-selling, $3 billion of saved costs and negative factors that would offset the benefit of releasing capital if the lender were broken up.

The trouble is, this wasn’t done because shareholders wanted it. Two years ago, the SEC blocked an annual meeting proposal calling for “extraordinary transactions that could enhance stockholder value.” Dimon and Lake revealed their math partly because sell-side analysts at Goldman Sachs produced a report dissecting a breakup.

It may well be that splitting off big divisions isn’t ultimately worth it. Goldman came up with a potential boost to JPMorgan shareholder value of somewhere between 5 percent and 25 percent. The low end of that wouldn’t justify the effort, though the high end might.

In any event, regulators would have something to say about any such transactions at a financial firm as big as JPMorgan or BofA. Banks may not like the scrutiny, but now shareholders will get a say in the debate, too.


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