This year’s been a painful one for JPMorgan Chase (JPM), Citigroup (C) and Bank of America (BAC)–even if they’re gaining today. MKM Partner’s David Trone has the perfect prescription for upside: Break them up.
Bloomberg News Bank of America has dropped 6.1% so far this year, while JPMorgan has fallen 7.3% and Citigroup has slipped 10%. Trone explains why he thinks Bank of America, JPMorgan and Citigroup not only should but will split up into their component parts:
…we believe the break-up of the universal banks is inevitable — not a question of “if,” but “when.” Clearly, current management teams do not agree with us, and are consistently defending the model, despite all evidence to the contrary. This simply represents the age-old “agency problem,” whereby managements do what’s best for them, not shareholders. However, in due course, we believe shareholder value will win out. We believe it is only a matter of time before activists come knocking on the door of one of the universal banks.
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Trone’s recommendation comes with a caveat: Don’t expect Bank of America, JPMorgan and Citigroup to break up anytime soon. “For patient multi-year investors, we recommend the universal bank stocks because we believe they will ultimately be split-up, thus releasing significant pent-up shareholder value,” Trone says. “However, we see little chance of this emerging with the next twelve months.”
Still, he does think Bank of America, Citigroup and JPMorgan Chase can gain 20% during the next 12 months, helped by a US economy that “continues to grow at a modest pace.” He iniated all three at Buy.
Shares of Citigroup have gained 0.7% to $46.87 at 3:22 p.m., while JPMorgan Chase has risen 0.9% to $54.19 and Bank of America has advanced 0.7% to $14.64.
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