Bank Watch

Analyst: Bank of America at greater risk of a shareholder push to restructure

Bank of America's expense management and weakened stock price position the Charlotte company to be at greater risk of investors demanding a restructuring or that it sell off portions of itself, an industry analyst said in a report Friday.
Bank of America's expense management and weakened stock price position the Charlotte company to be at greater risk of investors demanding a restructuring or that it sell off portions of itself, an industry analyst said in a report Friday. Bloomberg

Bank of America’s expense management and weakened stock price put the Charlotte company at greater risk of investors demanding the bank restructure or sell off portions of itself, in the opinion of one industry analyst.

Mike Mayo, a frequent critic of the bank, in a research note Friday described it as having a “lousy” efficiency ratio. That’s a closely watched measure of much it costs to generate one dollar of revenue. Mayo also said the sum of the bank’s parts are worth 40 percent more than the combined value of its outstanding stock, whose price has dropped 16 percent this year amid broader market turmoil.

Moreover, Mayo said, “shareholders have increasingly spoken up as part of director votes and other matters and more often agree with our concerns about poor governance and oversight.”

Bank of America spokesman Lawrence Di Rita declined to comment.

Past efforts to split up the bank have failed. A plan to have Bank of America study ways to break itself up did not win enough shareholder support to pass at the bank’s annual meeting last year.

The analyst’s remarks reflect heightened investor focus on Bank of America’s expenses, which CEO Brian Moynihan continues to bring down but which shareholders would like to see even lower.

Mayo wrote that Bank of America’s efficiency ratio is the worst among large U.S. banks. During a conference call in January, analysts questioned the bank’s executives about plans to reduce costs, noting some of its peers have done a better job of improving their efficiency ratios.

“Don’t think we’re complacent on this,” Moynihan said.

The slide in the bank’s stock price this year exceeds that of its two largest rivals, JPMorgan Chase & Co. and Wells Fargo, which are down 10 percent and 8 percent, respectively.

Of the nation’s four largest commercial banks, Citigroup has posted the largest slump, 18 percent.

The drop in banks’ stock prices comes as financial markets have been rocked by falling oil prices and concerns about slowing global growth.

Mayo said he has a positive outlook for bank stocks, which he said are trading at recession-level prices without a recession. Bank of America and the banking industry are more resilient since the financial crisis, he said, pointing to higher capital cushions he said would be able to absorb problems.

On Friday, he upgraded his 4-year-old “sell” rating on Bank of America's stock to an “outperform” rating.

Deon Roberts: 704-358-5248, @DeonERoberts

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