Wednesday, January 2, 2013

Michael Mayo calls on US banks to break up to raise stock prices

CLSA Ltd.'s Michael Mayo, a bank stock analyst, has called on the large US banks to break up as a means for raising their stock prices.

As reported by Bloomberg, the driver behind increasing bank stock prices is ultimately transparency.

One way of increasing transparency is to break-up the bank into small focused business units.

The preferred way of improving transparency is for each bank to disclose on an ongoing basis their global asset, liability and off-balance sheet exposure details.  It is only with this information that market participants can assess the risk of and value each of the bank's operations.

Bank stock prices could double if risk and cost of capital at the firms were reduced, reversing past efforts to boost returns by taking on more risk... 
“The largest banks have underperformed not only on returns but also on efficiency, revenue, risk, transparency, reputation and stock price,” Mayo wrote. 
“When we ask, a large majority of investors indicate that breakups -- divestitures, downsizings and de-mergers -- would be good for stock prices.” 
The goal should be “orderly” scaling back to achieve “safe banks” that have less leverage and lower risk... 

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