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Citi: Breaking Up The Tradition


Big bank breakup talk is in full swing.

The first big breakup might not be who you think.

C doesn’t have the immediate catalyst but the upside is material.

Big banks are bigger now than they were before the financial crisis. The time is ripe for breaking up the biggest of banks. Politicians are coming around to the idea as well, both sides of the table - Republicans and Democrats. Glass-Steagall, which is the Depression-era law that keeps conventional banking separate from trading, might be making a comeback. Both Republicans and Democrats have alluded to the fact that they're open to bringing back Glass-Steagall in some fashion - which would effectively force a break up of some of the nation's largest banks.

The problem is that politicians don't know which bank failures would trigger another financial crisis. They can't predict the next recession, nor can activist investors. The best we can do is look at the upside and make interpretations about which bank we can make the most money in.

I've talked a lot about breaking up Bank of America (NYSE:BAC), in part, because it has a clear catalyst and has been the grossest underperformer; the obvious catalyst is to spin off Merrill Lynch. But as BAC gets a lot of the break up coverage, Citigroup (NYSE:C) might be just as interesting. Like BAC, it trades at just 60% of book value. Since 2009, C shares have fallen by 38%, while BAC is flat.

Who really needs a breakup here?

Goldman Sachs (NYSE:GS) could also be a great breakup candidate. GS is down 10% in 2016, trading at just over 90% of book value. Yet, the bank is getting out in...