Citi Breakup Chatter: What You Need to Know

Posted on Posted in Financial News

Advocates of breaking up the nation’s megabanks just added a prominent ally.

Keefe, Bruyette & Woods, a New York investment banking firm known for its expertise in commercial banking, on Monday called on Citigroup to split itself up into two separate entities. Restructuring the company – the nation’s fourth-largest bank by assets – would be a boon for shareholders, providing for a faster return of excess capital, KBW said in a note to clients.

Granted, even the report and one of its authors acknowledged that a breakup is unlikely to happen anytime soon, but it adds fuel to the debate over whether to force the biggest banks to get smaller and less complex.

The conversation has gained traction over the past few months. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, in February expressed support for busting up the nation’s megabanks, citing the risks that they pose to the U.S. financial system. Kashkari’s speech echoed the rhetoric of several key Democratic lawmakers, including presidential candidate Bernie Sanders, who has made reforming Wall Street a central tenant of his campaign.

Meanwhile, shareholders at both Citigroup and JPMorgan Chase are slated to vote on breakup proposals this spring at the companies’ annual meetings. The votes were requested by Bartlett Naylor, a shareholder activist associated with the liberal lobbying group Public Citizen, according to a report last week in The Wall Street Journal.

A Citigroup spokesman declined to comment on the new KBW report, except to point to a defense of Citi’s current strategy in its 2016 proxy statement.

“Over the past several years, the [Citi] board has hired several subject-matter experts to assist it in determining if the firm’s chosen strategy was the most likely one to create the best long-term outcomes for our stockholders,” said the proxy, which was filed last week. “Pursuant to its most
recent review, and having taken into account changes in the operating environment, the board remains confident that the current strategy being executed by the existing management team will yield the best long-term results.”


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