Bank of America loses bid to block shareholder proposal calling for breakup

A Bank of America shareholder is calling on the bank to examine ways to break itself into multiple companies.
A Bank of America shareholder is calling on the bank to examine ways to break itself into multiple companies. AP

The Securities and Exchange Commission denied Bank of America’s request to exclude a shareholder proposal from this year’s proxy that asks the Charlotte bank to examine ways to break itself up.

The agency’s decision means Bank of America shareholders will get a chance to vote this spring on the proposal, although such measures typically face an uphill battle in winning stockholder support.

The shareholder behind the proposal said it is the first time the SEC has allowed a measure to go forward that pushes for splitting up a major bank.

The No. 2 U.S. bank by assets in January had asked the SEC for permission to omit the proposal from its upcoming proxy, arguing the measure was too vague. But the SEC sent a letter Tuesday to the bank saying it did not agree with the bank’s effort to dump the proposal.

Public companies send proxy filings to their shareholders ahead of their annual stockholder meetings. The document outlines issues that shareholders will vote on at the meeting, including the election of directors, the hiring of an auditor and proposals submitted by shareholders.

Wells Fargo shareholders, for example, will vote in April on a proposal requiring an independent chairman.

Companies can try to block proposals from coming to a vote by requesting an SEC ruling that essentially justifies leaving the measure off the ballot.

Under the proposal submitted to Bank of America, shareholder Bartlett Naylor wants the Charlotte bank’s board to appoint a committee to develop a plan to divest all of its noncore banking businesses.

Naylor, the financial policy advocate for the consumer advocacy organization Public Citizen, argues that Bank of America may still be too big to manage effectively and to contain risks that can spread across its other business units.

“Commercial banking can be very safe, whereas investment banking can be very risky,” Naylor told the Observer on Wednesday.

He said it “serves American economic interests” to not have large banks whose risky bets can lead to a taxpayer bailout. That’s also “a problem for shareholders who don’t want management to blow up their own institution,” he said.

Naylor declined to disclose how many shares he owns in the bank, but said he has owned stock in the company for decades.

Bank of America spokesman Lawrence Grayson said the bank will respond to the proposal in its proxy statement and it does not believe creating a special committee focused on shareholder value is necessary.

“The board as a whole focuses on shareholder value and regularly analyzes these issues,” he said.

The bank has already reduced its size by hundreds of billions of dollars through streamlining and simplifying its business model, he said.

The SEC declined to comment.

The proposal is nonbinding, which means even if shareholders pass it, the bank can choose not to form the committee.

Naylor provided the Observer with a copy of the SEC letter rejecting Bank of America’s move to exclude the proposal. Last year, the agency agreed with Bank of America when the lender decided to omit a similar proposal from Naylor.

In its letter Tuesday, the SEC said it didn’t find the proposal so vague that shareholders and the bank would be not be able to determine “with any reasonable certainty” what actions or measures the proposal requires.

In his supporting statement for this year’s proposal, Naylor recommends the bank explore options to split itself into two or more companies, with one piece housing federally insured banking functions and another focused on investment banking businesses such as trading.

Such a separation “will reduce the risk of another financial meltdown that harms depositors, shareholders and taxpayers alike,” the statement says.

Bank of America is not the only big bank to face calls for a breakup. JPMorgan Chase has opposed a similar shareholder proposal in the past, and earlier this year its CEO, Jamie Dimon, pushed back against suggestions that the bank would be more valuable split up.

Since taking the helm at Bank of America in 2010, CEO Brian Moynihan has taken major steps to streamline the company, selling off more than $70 billion in businesses and noncore investment stakes.

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Twitter: @DeonERoberts