Breaking up big banks is hard to do. But not impossible. The Edge predicts why activism will create future Spinoffs, e.g. Bank of America, Citi, HSBC, JP Morgan…
Feb 5, 2015
By Ronald Orol, Senior Editor at The Deal: Though companies aren’t compelled to actually do anything about these proposals — they are, after all, nonbinding — any large negative vote by a company’s shareholder base could become a signal to an activist fund that its fellow investors feel they are being disenfranchised and may welcome a public campaign.
Chief among activist strategies that the largest banks have the most to fear from is a movement to break up the banks that has gained steam since the financial crisis. “I do think activist hedge fund managers will get involved in the largest banks,” said Ryan Mendy, COO of boutique research firm Edge Consulting Group. “You’ve got damaged investors and pension funds at these big banks who would support an activist campaign.” Any breakup effort would still face significant investment barriers. Only the largest and most-respected activist hedge funds can acquire the kind of stakes that other passive institutional and retail investors would consider credible. An informal survey of advisers to activists suggested that only a small group of elite funds can take on a bank with more than $100 billion in market capitalization: Carl Icahn, Nelson Peltz’s Trian Fund Management LP, Paul Singer’s Elliott Management Corp., Barry Rosenstein’s Jana Partners LLC, Jeff Ubben’s ValueAct Capital Partners LP, Corvex Management LP and Jeff Smith’s Starboard Value LP.