Mayo: Breakups Will Increase Value, Morgan Stanley Disagrees

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Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) both have divisions that could be “ripe for divesture”, according to noted CLSA Ltd. Analyst Mike Mayo. That’s if the largest banks in the U.S. do decide to break up so they can improve their stock prices.

Mayo: Breakups Will Increase Value, Morgan Stanley Disagrees

Mike Mayo targeted Bank of America Corp (NYSE:BAC)’s brokerage division and JPMorgan Chase & Co. (NYSE:JPM)’s asset-management division, as well as Citigroup Inc. (NYSE:C)’s unit located in Latin America, in his note to investors today. He said the stock prices of the banks could double if their risk and cost of capital were reduced.

“The largest banks have underperformed not only on returns but also on efficiency, revenue, risk, transparency, reputation and stock price,” Mayo said in his note.

As we reported in July 2012, in an interview with Bloomberg TV, Mayo also said big banks should split up, even going so far as to say that Morgan Stanley (NYSE:MS)’s stock could be worth $16 to $32 per share if it broke up. Then in August after several other major players in the financial industry also called for major banks to split, Morgan Stanley (NYSE:MS) said its research indicated the opposite of what Mayo said. It found that banks would be worth 30 percent less if they were to split up.

Mayo said that the goal should be for the largest banks in the U.S. to “orderly” scale back, so that they would be safer and have lower risk levels. One example he gave within the industry is UBS AG (NYSE:UBS)’s cost-cutting tactic involving the exit of the majority of its fixed-income division. He also suggested de-mergers as another possible route.

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