Breakup Talks Dog BofA
Apparently, the politicians aren’t the only ones who’d like to dismantle big, risky banks. Two Bank of America CEO candidates recently told the board of directors that the bank should consider breaking itself up.
The board has apparently rejected the idea (as well the candidates who recommended it). But Aite Group analyst Alois Pirker says Bank of America should get used to such breakup talk for now. “At this point, it’s a natural discussion to have. Everyone’s going to hear a lot more of this discussion going forward. It was on the table for Citigroup and now everyone’s asking the same questions about Bank of America,” he says.
Some questions that are likely being considered, according to Pirker, include: Are the synergies among the bank’s units working? Are in-house referrals between the bank and securities divisions yielding new business? Are the various pieces of the bank worth more on a standalone basis than as part of the whole?
Pirker says there are many potential ways to break up the bank. “But if the argument is about size and that Bank of America is too big, then the break up will have to be significant. Ultimately, you have retail banking and the securities business. Merrill Lynch is immediately on the table if you’re breaking up the bank based on size,” he says.
Still, BofA directors do not seem to favor the move and aren’t looking for a CEO with breakup on the brain. BofA management likes the current structure of the firm, and a bank spokesperson told the Wall Street Journal that the board is “looking for somebody who can execute against the model.” Meanwhile, Rochdale Securities analyst Dick Bove believes no one can run Bank of America like Ken Lewis can, and that the board should convince the retiring CEO to remain at his post.
“It’s interesting to note that the risks in the huge system at Bank of America aren’t on the Merrill Lynch side. The risks are more customer-oriented and deal with credits cards and loans. The investment banking and securities business look a lot better now,” Pirker adds.
