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We Must Break Up Bank Of America


Big banks need an activist sooner rather than later.

They’ll continue to underperform unless we see a major catalyst.

The biggest catalyst possible would be a breakup — and we’re getting much closer.

Will we see another large-scale bank bailout like we did with the financial crisis? That's anyone's guess. However, that doesn't change the fact that some of these banks are still too big to fail. This is a moral hazard in and of itself, as banks like Bank of America (NYSE:BAC) can continue to grow ever bigger and take on more unnecessary risk, all with the promise of getting bailed out by the government.

The problem with bailouts is that investors are not necessarily bailed out. Shares of BAC are still trading at half the level they were in early 2008. But at the end of the day, should we really be all that worried about too big to fail? In truth, investors of BAC and other large banks should be more concerned with too big to grow.

Again, big banks need a breakup

We still need a bank breakup, but despite the pressure from Washington, it might just be an activist investor that gets the job done. Banks like BAC and Citigroup (NYSE:C) would be much more investable for many investors if they were smaller, more manageable, and easier to understand.

There are plenty of reasons activist investors need to target BAC. It and its too-big-to-fail peers have been underperforming, and that's a trend that looks to continue unless we see a major catalyst.

When will they come?

It's tough to say who will be the hero. Will it be Carl Icahn, Nelson Peltz, or perhaps Jeff Smith? One smaller fund has already gotten the ball rolling: Hudson Executive. The firm has targeted Comerica (NYSE:CMA), one of the top 30 banks in the U.S.

Hudson owns a small stake in the bank but is still pushing for Comerica to sell itself to a mid-sized regional bank. The key arguments is that this...