Market headlines have been dominated in past weeks by a potentialDeutsche Bank AG (USA) (NYSE:DB) collapse and its systemic risk to the global financial system. DB’s woes, along with the scandal at America’s largest bank by market capitalization, Wells Fargo & Co(NYSE:WFC), has renewed public interest in breaking up the biggest bank stocks.
The market seems to perceive a government-driven big bank breakup as bad news for bank stocks, but breakups might actually go a long way in unlocking shareholder value.
Bank of America Corp(NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc(NYSE: C) and WFC stock holders stand to gain the most.
Turning Up the Heat on Bank Stocks
A number of Wall Street analysts have suggested that big bank stocks should consider splitting up on their own as a strategy to combat lagging share prices. It’s been eight years since the financial crisis, yet BAC and Citigroup still trade below tangible book value.
Back in January 2015, Goldman Sachs suggested that JPM stock could see 25% upside if the company split into up to four different public companies.
In March, Keefe, Bruyette & Woods analyst Brian Kleinhanzl projected that a Citigroup breakup could produce nearly 60% upside for Citigroup stock.
Analysts at JPMorgan, Wells Fargo and CLSA have all been making the value argument for years.
This year, there has been a surge in activist investor interest in breaking up financial stocks as well. Carl Icahn has publicly called for American International Group Inc (NYSE:AIG) to break its business into three companies.
Activist investor Bartlett Naylor has been calling on the board members of BAC, JPM and Citigroup to form committees to study the potential impact of breakups.
The Benefits of Breaking up Bank Stocks
Bank breakups make…
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