Shareholders of Citigroup and JPMorgan Will Vote on Potential Breakup
Citigroup and JP Morgan shareholders will vote to decide whether to breakup the banks into smaller ones later this year. The question will be included in the proxy filling in shareholders meeting. As the banks have performed well, it is likely shareholders will not support the plan.
The votes were requested by small shareholder activist Bartlett Naylor, a financial policy advocate at the liberal lobbying group Public Citizen. He has raised the issue several times without success. Last year, he filed breakup proposals for Bank of America which was rejected by the Securities and Exchange Commission.
Two years ago, when Naylor filed similar proposal to breakup JP Morgan, the bank submitted request to Securities and Exchange Commission to leave his proposal off the ballot. SEC granted JP Morgan's request and took Naylor proposal off the ballot. This year JP Morgan does not submit similar request.
Bartlett Naylor, the self-proclaimed corporate governance expert believes the banks should split into smaller pieces. He argue the smaller bank will boost shareholder value as they will become easier to manage.
In an interview with Reuters, Naylor hoped the proxy advisory firms will back studies by directors even if they won't tell directors to break up the banks.
JP Morgan Chief Executive Officer James Dimon as quoted by Wall Street Journal said, "The synergies (of being big) are huge, both expense and revenue." As for the breakup he said, "the unscrambling would be extraordinarily complex…in debt, in systems, and technology and people."
Previously CEO Dimon has mentioned that JPMorgan is stronger because of its large and diverse businesses.
Meanwhile, Citigroup directors opposed Naylor's resolution filed on Wednesday. The board noted that Citigroup has undertaken a transformation on its own to become smaller and more efficient. Since 2008 Citigroup has shed more than $500 billion of assets and has returned to profitability.
Recently, Citigroup followed JP Morgan to expand its swap business, offering declining liquidity in the debt markets as derivatives. Citigroup expanded its total-return swaps (TRS) to cover investment-grade debt, after last December the lender began to sell its TRS to Markit Group Ltd.'s high-yield bond index.
Spokeswoman of Citigroup Danielle Romero-Apsilos told Bloomberg, "TRS is a natural extension of the derivatives products suite we offer to our clients."
Investors are interested in derivatives because it is easier to bet on debt, rather than credit market trading. Recently credit markets have become more time consuming and expensive as liquidity is drying up. While regulations also hinder bank to take risk by holding large positions, therefore derivatives is appealing.
As proxy filling will be included in the shareholders meeting, Citigroup and JP Morgan shareholders will vote on the option to breakup the banks. However, as the banks performed well shareholders is unlikely to support the plan.