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Sanford C. Bernstein analyst Brad Hintz on why some investors are now calling for the break-up of large banks.
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Often talk about the possibility of government forcing big banks to break up but one analyst says -- now.
It's the investors who may want to split the banks very interesting take read -- analyst at Sanford C Bernstein.
Joins us now sort of biggest investors.
Are pushing for these banks to break up what is the motivation.
You you can look at the banks in their trading below their liquidation.
-- -- to their bank has some has a mark to market balance sheet so in theory you could just look to liquidate all the assets in the bank and get the tangible book value.
Feminist has spent off I mean that's right within I don't think break up IC spin -- -- that right -- -- a profit correct.
Well you couldn't -- -- remember what they're talking about his re engineering the banks.
And they're saying the market doesn't doesn't view the -- may -- organizations.
They're selling every type of financial product.
With with with the valuation that they thought they could have gotten from them.
So now can -- take them apart and generate value now.
-- could I sell the asset management and business no problem SEC gonna get rid of the retail business yeah.
That's actually relatively -- saw a Merrill Lynch could go away from the bank for America that would not be problematic.
Back -- -- say ADR remember that Democrats are let's just bring that back trading becomes a problem right.
And trading sterling where the challenges -- because that's what's really pulling down the valuation of the banks.
And so you know it's it's institutional investors saying you don't you value here should you do something about it.
Then you're actually hearing -- boards which have discusses.
Now that so the boards are looking at it to the regulators on the other hand it's a different story right the regulators have changed the rules.
As a result institutional investors say -- and they ever beat their cost of capital.
And the boards are now saying -- let's see if we can change.
Let's see if we can make money with what we have now or is there another alternative.
By the way this does not make it easy to get -- -- to get rid of all these operations -- to spin them off.
Through its really quite difficult in today's environment.
Right my eight question is cautious -- so chaotic to just break up all the banks so.
What would an orderly break up look like in terms of the time -- also against the political backdrop right because are we expecting.
The Republican candidate presumptive candidate Mitt Romney to come out his answer to Dodd-Frank.
Have all these factors kind of filter and is this something that would happen in the near term or is this just kind of that the long took longer term.
Sort of.
It be very -- -- folding -- me in many ways it's like it it's like on scrambling eggs because for the last four years.
What you know we knew that Volcker was coming we know we knew that Dodd-Frank and Basel III work we're changing and so as a result.
What you have to do is you -- -- consolidate businesses and reduce expenses and put them all together and that was gonna reduce or regulatory capital.
-- they still haven't beat their cost of capital.
So they've made all these changes but it essentially they've taken -- in the egg which was the broker dealer standalone.
They've mixed it up with banks and they've consolidated with the regulatory rules.
And now -- have to take it all -- take a somewhat apart and put them back into the egg yup can't be done sure can't can't be done quickly.
No -- and make them look Smart look what can you imagine know what the administration.
What but the Treasury Secretary Ben Bernanke can you imagine the rhetoric coming out of Washington though we gonna talk about breaking up the banks.
That we just saved back in 2000 -- The week that all the bailouts that that that the taxpayers went through means that the backlash I think -- I don't know incredible.
Congress has no -- it -- it interfere in the markets but they have a habit of doing.
Well let's let's let's think good you know look at -- look -- -- Neil let's just step back from this one insect.
You know what happened when Drexel Burnham -- up big failure front page of every of every paper.
But all trachsel did was heard a couple of savings and loans -- central banker to didn't cause a systemic risk so the idea of splitting -- up.
So that that's the failure of a trading operation.
Could actually have you know this it could be.
You'd do it as a successful failure right Drexel was a successful failure Lehman was an unsuccessful failure that's -- difference between the size in the linkages but it.
Between them you're actually right politically it's a nightmare.
And could -- Morgan Stanley do something like this very very difficult because they have their retail business.
Wind pushed to the edge of unable to beat to -- -- cost of capital these companies are not altruistic.
Vick from Bank of America.
Who JPM.
If -- issue finally conclude.
That Dodd-Frank.
Was essentially Glass-Steagall but a closet Glass-Steagall.
Then you're -- in your choice is very simple your choice is either shrink the business sharply.
And give the capital back to shareholders or try to get some value went out of by setting it up independently from its.
Fascinating when -- the landscape of Wall Street was changing in 20082009.
Continues to.
Brad thank you so much for joining us president thank you think take --
