In her latest Fortune column, former FDIC Chair Sheila Bair makes a strong push for shareholders to take a stance on breaking up the megabanks—Bank of America, JP Morgan and Citigroup, for instance—for the simple reasons of increasing shareholder value and getting rid of “too big to fail” once and for all.
In this day and age, the numbers have proven that having more focused and specialised operations will yield better results for the companies themselves and their customers, in turn generating more value for shareholders . From Fortune:
Price/earnings per share for the supersizers averages 5.8, compared with 8.1 for smaller, more focused Wells Fargo (WFC) and 8.1 for the bigger regional banks like U.S. Bancorp (USB) and PNC (PNC). More telling is the ratio of share price to tangible book value. For the supersizers, the average is 72% of book, compared with 165% for Wells and 142% for the big regionals. Chase’s strong performance holds up the average for the supersizers, but even its price to book is only 110%.
Bair points to the developing break-ups of McGraw-Hill and Kraft as beneficial examples of breaking up big corporations, also citing historical events such as the value of John D. Rockefeller’s shares of Standard Oil doubling after monopoly broke up. She calculates the possible increase in share value if the big banks broke up:
At the beginning of the year, Citi’s share price was trading at 58% of tangible book value, while BofA was trading at 48%. If Citi and BofA were broken up into smaller institutions that traded at price to tangible book ratios on par with the average of the big regionals, their shareholders would see $270 billion in appreciation. JPM shareholders would see $52 billion in appreciation.