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Big Banks Worth More to Investors Broken Up Into Components than as Giant Conglomerates
Shareholders Join Bankers, Economists, Financial Experts, Regulators and the American People In Calling for a Break Up of the Giant Banks
The president of the Federal Reserve Bank of Dallas, Richard Fisher, has long said that the component parts of the biggest banks would be “worth more broken up than as a whole.”
Last year, Crain’s New York estimated that Citi’s component parts are worth 40% more than Citigroup’s current market price.
Forbes’ Robert Lezner argues:
The proper solution obviously is to break-up the banks into their stand-alone parts. Without government pressure, voluntarily, strategically, with the proper stated purpose of benefiting the banks shareholders, who have not gotten anywhere near back to the price of the their shares in late 2006 or 2007. (C is selling at 5% of its peak price; BAC at 25%, GS at 60%) I’m told there are hints of this solution bubbling amongst the bank analyst fraternity.
Spin off the asset management division that manages several hundred billion of other people’s money into a public company that will have the multiple of a T. Rowe Price, or a BlackRock, which will have a transparent cash flow and sell at some price-earnings multiple higher than a bank today and behave according to the way the stock market behaves. It would be regulated by the SEC and be dependent on its own performance and not a bunch of financial activities with leverage that few can understand, much less put a dollar value on.
Then, spin off the consumer banking operation into a separate stand-alone business. Its profit margins will be transparent as the spread between the bank’s borrowing costs and the yield on the loans or mortgages it finances. I’d be willing to bet these operations, with more predictable earnings and a steady dividend would also sell at greater than 10 times earnings. These spin offs would be regulated by the Federal Deposit Insurance Commission (FDIC), which might well strongly suggest a cap on the leverage that can be used of between 10 and 15 times.
Thirdly, the wholesale banking operations, the collateralized loans, the derivative positions, the futures, puts and calls would be in their own unit. Investors and analysts and regulators would be able to evaluate these institutions more rationally, especially if they are forced to disclose more exactly what they are doing globally and with whom.
Now, analysts at even the giant banks themselves are starting to agree.
Bloomberg reported yesterday:
Shareholders at the biggest U.S. banking conglomerates may demand breakups if valuations remain depressed, according to analysts at Wells Fargo & Co. (WFC)
So-called universal banks such as Bank of America Corp., Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) are trading at a 25 percent to 30 percent discount to more-focused competitors, analysts led by Matthew H. Burnell wrote in a research report today. Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), which concentrate on investment banking, trading and money management, are within 8 percent of the estimated value of their parts, the analysts wrote.
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“If regulators and/or legislators don’t demand it, shareholders could also intensify demands to ‘break up the banks.’ ”
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Burnell’s team calculated that pieces of Bank of America are worth 41 percent more than their tangible book value, a measure of how much shareholders would receive if the firms’ assets were sold and liabilities paid off.
Citigroup should get a 24 percent premium, JPMorgan should get 69 percent and Goldman Sachs should be valued at 19 percent more than tangible book, the analysts said.
Citigroup, ranked third by assets and based in New York, and Bank of America, ranked second and based in Charlotte, North Carolina, trade at about 14 percent and 7 percent less than tangible book value, according to data compiled by Bloomberg.
JPMorgan, the biggest U.S. bank by assets, and Goldman Sachs, the fifth-biggest, trade for 28 percent and 9 percent more than tangible book value, respectively. The valuation for the two New York-based companies compares with the 281 percent premium fetched by Minneapolis-based U.S. Bancorp (USB), the nation’s largest regional bank.
New York-based Morgan Stanley should be valued at a 13 percent discount to tangible book value, compared with the current discount of about 19 percent, the note said.
***
Michael Mayo, CLSA Ltd.’s bank analyst, wrote in a separate note yesterday that shareholders in the biggest firms are more likely to agitate for changes than in prior years.
“Almost every large investor from our meetings and conversations over the past four months agrees that bank managements should be held more accountable and more often intend to vote against directors, compensation plans, and other actions,” Mayo wrote in an April 9 research note.
In a separate story yesterday, Bloomberg notes:
JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets and the top investment bank by fees, is questioning the so-called universal bank model’s future.
Top-tier investment banks are “uninvestable at this point with a risk of spinoff from universal banks,” JPMorgan analysts led by London-based Kian Abouhossein wrote in a research note today. They cited potential rule changes and curbs on capital and funding.
Who Wants to Break Up the Big Banks … And Who Wants to Maintain the Status Quo?
Financial experts, economists and bankers say we need to break up the big banks.
The overwhelming majority of Americans want to break up the giant banks as well.
Given that shareholders are now starting to understand that breaking up the giants would be better for their own portfolios, the power of the markets may finally weigh in to split up the too big to fail banks.
So who is is against breaking up the giant banks?
Apparently, the only people opposing a break up are the handful of welfare queens - er, I mean current top corporate brass - who mooch off the public to reap insane windfalls, and the bought and paid for D.C. politicians who make money hand over fist by literally pimping out the American people to their buddies.
And see this.
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Where's Gordon Gekko when you need him?
GW, big gratitude energy expressed well.
Sometimes the limitations of having too much fun are seriously tested.
The teachers so bright, ya gotta ware shades.
Knock, knock: Who's there?
DEAD BANKS DON'T BARK!
:)
http://www.youtube.com/watch?v=WDdI_sfNop8
Wouldn't that be great. It would be so significant if someone, somehow, somewhere, could get these too-big to manage, too-big to prosecute, too-big to function properly, "things", I don't really want to call them banks, to break up into distinct businesses that could be regulated and controlled appropriately.
Put Blankfein and Dimon in handcuffs first and then break them up.
He missed the central point. The banking system has swollen beyond any economic utility. Banks should only be large enough to provide the liquidity necessary to lubriacate business money flow. It's been decades since banks met that need. Banks don't produce a product, so they don't add to productivity when they are too large of a portion.
The entire financial sector needs to be right sized. That would turn loose the few talented ones currently working in that sector to more productive avocations. The rest should be on EBT cards where their talent is used to their maximum potential.
Exactly.
If you let the socialist firefighters union keep building fire stations, a weird thing happens. The number of fires keeps increasing to match the number of fire stations. And more and more of the fires are arson jobs. And strangest of all more and more of the fires occur closer and closer to the fire stations themselves...
Try telling us something new, you tool. Go back to fukushima.
In theory. But in reality when broken up they would actually have to compete and margins and revnues would decline in most segments. No matter how designed "Chinese Walls" never work as there is always some scum bag CEO or VP (most of them) who can look over a wall and essentially trade on what is inside information. Volker knows this and knew, at the minimum, proprietary trading was a license to steal. Break them all up by function, keep them regional at most, eliminate the primary dealer network (it's antiquated and unnecceassry); make it illegal for a bank employee to work at Treasury, the Fed,The FDIC, the Comptroller of the Currency for a period of 5 years after employment and visa-versa.
jpm ,comex & conspiratores you are whores of babylon!
Yeah, big banks would definitely be worth more broken up. That's why all the huge institutions that own vast amounts of their outstanding shares have voted to split the compa....oh wait...they haven't. Somehow I think shareholders that have trillions of dollars in AUM have more of an idea of what exactly the SOTP valuation of the banks they're invested are than say, the government and all the other assorted folks that jump on the "I hate anything remotely resembling a bank" bandwagon.
When talking about shareholders this article mentioned, correctly so, that there has been more demand for accountability and restrictions on compensation for executives at poorly performing institutions; and that should definitely be the case. What this article doesn't say, because there hasn't been any widespread clamoring for it, is that the big boys that own sizeable stakes in the bulge bracket have't so much as murmured about spinning off substantial segments of the banks.
Everyone into the pool. Buy 'dem TBTF banks!
break up JPM asap . for starters reinstate Glass Steagal , then ...Get the Rope!
Broken into components?
God Bless the bulldozer man, wherever he is.
Just look at this puppy-
http://www.rockanddirt.com/equipment-for-sale/CATERPILLAR/D9L/invnum=367...
At 75K, it's a steal.
Wouldn't C4, etc., work to the same effect, and more erm.. effectively?
Just bulletproof the cabin and engine, and run that sucker through town!
When you're done, you can use it for prospecting gold.
Great post, GW, great post and thoughts!
The Causes of the Global Economic Meltdown and the Years-Long Great Deleveraging
(Or, Disaster-By-Design for Dummies)
Recently, with the criminal corporate-owned media focusing almost solely on the upcoming Social Security Grand Theft, it is important to once again review the obvious underlying causes of the economic meltdown, and why it shall continue for many, many years.
Yes, we realize that our neocon fraudster in Washington, Maria Cantwell, robotically repeats her Wall Street-directed mantra that these "were exotic derivatives that nobody understood" --- so we will endeavor to make this so simple even a talking twat (being charitable), or total neocon fraudster (given her cretinous voting record) can understand.
The primary three causes, all interconnected, were: (1) ultra-leveraging (making series of layered loans, such that $1 of capital reserve on hand, can be loaned out for $1,000, $10,000, $100,000 plus; (2) ultra-leveraged speculation on oil/energy, commodities and a host of other precious metals and related substances and processes; and (3) the greatest bunch of insurance swindles in human history.
The naked swap, or unconnected or "uncovered" credit default swap, is termed as unregulated insurance --- the Wall Street firms and their bought-congressional lackeys insured this was so with the passage of a number of legislative items, chief among them the Private Securities Litigation Reform Act (around 1995, by unanimous consent of the House of Representatives, therefore no presidential signature required), to "remove legal risk" (I.e., legalize financial fraud among derivatives dealers, affiliated attorneys and accountants, etc.), and the Commodity Futures Modernization Act (which was signed by Clinton in 2000 just before vacating the Oval Office) removing any and all oversight on derivatives and electronic exchanges (the credit default swap is a category within credit derivatives).
With the passage of these, they insured that an unlimited amount of unregulated insurance could be sold against specific debt products, thereby insuring absolute economic destruction, while greatly profiting themselves --- the perfect global financial fraud scheme, or disaster by design.
Now just imagine for a moment, if your nefarious neighbor snuck into your house and caused a gas leak, then took out an almost unlimited number of insurance policies against the destruction of your home (clearly illegal at that level, called insurance fraud), then tossed a lighted match into your home and destroying it, while collecting on thousands and thousands of insurance policies, which bankrupted the insurance companies (assuming payouts) and the city, state and possibly the country.
This is EXACTLY what occurred: when Bear Stearns went into meltdown, just prior to being scooped up by JPMorgan Chase, they had $190 billion in external debt, but $2 trillion in credit default swaps written against that debt --- which meant a potential payout of $200 trillion --- considerably greater than the global GDP.
Yet, that was just one instance, one event: consider that AIG wrote $460 billion of those "unregulated insurance" credit default swaps (CDS, or naked swaps) for people not even connected to the bonds, CDOs, etc., they were taking them out against, with the potential payout of from $20 trillion to well over $40 trillion --- again enough to bring down the world economies --- hence those TARP bailouts. (When AIG, MBIA, Ambac, and others, sold all these CDSes, or naked swaps, with no reserves on hand for future payouts, this amounted to simple insurance fraud of unprecedented levels.)
Yet again, the US Treasury (a wholly owned subsidiary of JPMorgan Chase and Goldman Sachs), still fully embraces their favorite wet dream, the naked swap --- or uncovered credit default swap.
And that's why Magnatar Capital could do a business deal rate of 96% failure, yet the top people walk away with billions of dollars in "profit" --- purposely doing trashy deals, but taking out an almost unlimited number of credit default swaps (or naked swaps) against said dirty deals; just as when John Paulson got together with Goldman Sachs on that financial fraud scheme called the Abacus CDO, which netted them billions and billions of dollars.
Colossal insurance fraud, that they can only do on the rigged financial markets; ultra-leveraging with endless securitizations, re-securitizations, re-re-re-securitizations and credit derivatives, and rehypothecation, or the use of "phantom collateral."
Anyway you cut it, it's financial fraud by and for the super-rich, or disaster-by-design<, and shift the burden of their super-debts onto the rest of us with the Great Deleveraging.
And that phony-baloney Dodd-Frank Act? It simply consolidates their power and ability to do ever more financial manipulation and greater and greater speculation.
So keep in mind their ultimate tools of economic mass destruction and wealth transfer:
(1) an unlimited number of credit default swaps can be bought and sold;
(2) an unlimited number of commodity futures can be bought and sold; and,
(3) an unlimited number of investers allowed per hedge fund.
Add to this the DTCC's Stock Borrow Program, allowing for unlimited amount of naked short selling of stocks worldwide, and one begins to recognize their awesome power.
'Nuff said.....
Yeah, the government should definitely determine how much of things can be bought and sold and how many customers (investors) a company should have. Hell, they do everything else so well....
I call it Risk Laundering.
perfect
It looks like the al-Qassam Cyber fighters will continue their DDOS cyber attacks on US banks and US allies (i.e. TDKey Bank and Dutch banks).
The current targets identified today are Key Bank and HSBC. (12 April 2013)
The Qassam Cyber Fighters full name as claimed is: Izzad-Din al-Qassam Cyber Fighters
Despite the commonality of names, they are more likely allied to Iran than holding allegience to a Palestinian agency. They claim the reaons for the attacks is the video "Innocence of Muslims" produced by US "pastor" Terry Jones.
They also have a strong anti-Saudi flavour which again suggests a Shia group with Iranian leanings.
For more on this see: http://tinyurl.com/ct68dtm
Or go to www.pastebin.com and search for "Izz ad-Din al-Qassam Cyber Fighters"
or go to: http://hilf-ol-fozoul.blogspot.ca/ (NOTE: this site is a bit suspect as it functions as a spokesman for the Qassam Cyber Fighters. You may not want to access it from work if your employer is a bit sensitive about this sort of thing.....)
"worth more... broken into components"
I feel the same way about my senators
And the quadrillion in derivatives would go to whom? Guess they all net against one another, so who cares...
Who you gonna call?
Trust Busters!
pimps are the same in English,George.
Fuck the banks, END THE FED!
LOL.
Now the shareholders want to break up the banks. Look out, Jaime, the shareholders want to withdraw their precious capital.
LOL.
https://www.youtube.com/watch?v=VRTngtsOY8Q
That can't withdrawl their capital, Jamie built a fort out of it!