Shareholders Vote against Proposal to Split Bank of America
Results from Bank of America’s Annual Shareholder Meeting on May 6 (Part 3 of 3)
No splitting
In Bank of America’s (BAC) annual shareholder meeting on May 6, 2015, shareholders voted against a proposal recommending that the board divest all non-core businesses and explore options to split the firm into two or more companies.
The proposal suggested breaking the bank into two companies with one performing basic business and consumer lending, and the other focused on investment banking.
Streamlining is already in process
According to the bank, it is already streamlining its operations and has reduced its size, scope of activities, and risk since 2010. Thus, management believes that splitting the firm would hurt rather than enhance shareholder value. Bank of America (BAC) forms ~5.8% of the Financial Select Sector SPDR ETF (XLF).
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Client benefits
According to the bank, there are significant client benefits from an integrated model. These include:
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efficient access to capital
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access to global investment banking, corporate advisory services, and research expertise
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access to a full range of banking products supported by a broad physical and digital delivery network
Shareholder benefits
From the management’s perspective, shareholder benefits arising from an integrated model include:
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support for a stable earnings stream across business cycles
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expense synergies through shared infrastructure costs
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diversified funding advantages
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revenue synergies across businesses through referrals
The bank’s referral volume increased from 300,000 to 4.2 million in 2014. The company aims to reach 5 million referrals in 2015. The above figure highlights how Bank of America benefitted from referrals.
The “too big to fail” argument emerges often for large American banks. JP Morgan (JPM) and Citigroup (C) too have faced break-up clamor from various groups. Goldman Sachs (GS) in January suggested that JP Morgan would be worth more if it were to split.
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