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Big Bank Breakup On The Way

Summary

Are we getting closer to a big bank breakup?

Possibly - as politicians are now chomping at the bit to make an example of Wall Street.

BAC looks most poised to get the activist treatment.

Bank of America (NYSE:BAC) is one step closer to a breakup. The big bank will soon feel pressure from the federal government, as the politicians gear up their push to reinstall Glass-Steagall. Last month, I talked about BAC being a breakup target, but we could be even closer after both political parties have voiced support for Glass-Steagall, which could mandate a system-wide breakup of too-big-to-fail banks.

Breakup Bound

The Brexit and the seemingly forever low interest rate environment continue to weigh on BAC - now down 15% in 2016. But BAC reported earnings this week that beat on the top and bottom lines. But are earnings really getting any better? Earnings beat expectations by 25% despite the fall in revenue, as the bank continues to find new ways to cut costs, with staff cuts leading the way. The glimmer of hope is that BAC has seen its charge off and delinquencies fall yet again. Trading revenue was a positive, but let's not get ahead of ourselves.

The Calls Get Louder

The calls for big bank breakups, namely BAC, are growing louder as the Republicans rolled out their platform to overhaul Wall Street this week. The latest is a plan to reinstate Glass-Steagall to help get the big banks broken up. The idea of Glass-Steagall is to keep commercial lending separate from trading. The rule was dropped in 1999, thanks to Bill Clinton, and banks have been growing gangbusters since then with international expansion and getting into...


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