Is breaking up really so hard to do ?
Shareholders at the biggest U.S. banking conglomerates may demand breakups if valuations remain depressed, according to analysts at Wells Fargo.
Bloomberg reports that so-called universal banks such as Bank of America, Citigroup and JPMorgan Chase are trading at a 25% - 30% discount to more-focused competitors, analysts led by Matthew H. Burnell wrote in a research report Wednesday.
Goldman Sachs and Morgan Stanley, which concentrate on investment banking, trading and money management, are within 5% of the estimated value of their parts, the analysts wrote.
'Given the challenges posed by increasing regulation, higher capital requirements, and well-publicized trading/market challenges, it’s not surprising that investors remain reluctant to assign a ‘full’ valuation to the universal banks', the analysts wrote. 'If regulators and / or legislators don’t demand it, shareholders could also intensify demands to ‘break up the banks'.'
The analysts compared valuations of the biggest U.S. firms to the estimated value of their separate pieces. On this basis, Burnell’s team calculated that pieces of Bank of America are worth 41% more than their tangible book value, a measure of how much shareholders would receive if the firms’assets were sold and liabilities paid off.
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