There is not one good reason to break up the Bank of America, the Charlotte-based giant with $2.1 trillion worth of properties that include Merrill Lynch and Countrywide Financial.
There are many good reasons.
As a shareholder, I submitted a resolution for a vote at the annual meeting May 6 that calls for the board of directors to study the merits of a break-up. Public Citizen, where I work as a financial policy advocate, has amassed more than 20,000 signatures in a petition supporting this proposal. Here are 10 reasons to support this study.
1. BoA’s stock trades at about $15 a share. Before this acquisition in Merrill Lynch, the stock traded above $50.
2.The company’s book value is greater than the stock value. If the company is liquidated, with the $2.1 trillion in assets sold to pay off the $1.86 trillion in liabilities (deposits, bonds, etc), this will leave a net of $240 billion. But the stock is only worth about $160 billion. Buy all the stock, liquidate the bank, and shareholders can earn more than $80 billion.
3. The company earns (in after-tax income) a paltry 0.23 percent on these $2.1 trillion in assets. Imagine a factory that costs $2.1 trillion that only returns 0.23 percent on that investment each year. Investors might consider Microsoft, which generates 18 percent on its assets. Much of this difference between Microsoft and BoA is explained by the bank’s massive $1.86 trillion in debt. After servicing that debt, there is little left for shareholders. But even among BoA’s peer mega-banks, that 0.23 percent return is poor. Wells Fargo returns 1.4 percent on assets.
4. BoA’s return on shareholder equity is also poor. It has not been above 5 percent since the Merrill Lynch acquisition. Before that, it often returned more than 15 percent. That 15 percent is close to what Wells Fargo returns currently.
5. One reason that BoA performs so poorly with all this money is that it is too big to manage. The company owns hundreds of subsidiaries. Undoubtedly, the CEO couldn’t list them all, let alone recite their specific business purposes.
6. The company miscalculated its regulatory capital by some $4 billion—not just for one year, but for five years. It has restated operating line results numerous times.
7. JP Morgan posts better figures and enjoys a better management reputation than BoA, but an analyst believes JPMorgan would be worth more to shareholders broken up as well. John Reed and Sanford Weil who merged Citibank and Travellers Group into Citigroup both now agree that Citi would be better broken up. They understand the impossibility of managing the daily operation and risks of such a behemoth.
8. General Electric decided to sell GE Capital—and the stock price rose by more than 10 percent on the news
9. BoA managers failed to prevent massive fraud. In August 2014, BoA agreed to a $17 billion settlement with the Department of Justice. Explained the DOJ, “Bank of America caved to the pernicious forces of greed and cut corners, putting profits ahead of their customers.” Shareholders funded that $17 billion settlement with the government, not those responsible for the fraud at BoA. That precedent can serve as an invitation for other BoA managers to flout the law as well if there’s no personal accountability.
10. BoA’s size isn’t necessary to serve large customers. BoA joins syndicates for large loans. Boutique Lazard Freres brokered the sale of Heinz to Berkshire Hathaway.
Bartlett Naylor is the financial policy advocate for Public Citizen’s Congress Watch division.