JPMorgan, Citigroup split-up on cards?

The largest banks already face new regulations that penalise them for their size

An advocate for stricter Wall Street regulations is asking shareholders of JPMorgan Chase and Citigroup to vote to consider breaking up the banks. The proposal, by Bartlett Naylor, the financial policy advocate at the activist organisation Public Citizen, is expected to appear in the annual proxy filings of both banks and will then be put up for a vote among all investors who own shares in the banks.

Similar proposals from Naylor have been either shot down or defeated by the banks in the past. Last year, only 4 per cent of Bank of America's shareholders voted for a similar proposal from Naylor.

But public debate about breaking up the banks has, if anything, heightened over the last year as Senator Bernie Sanders has put the issue at the centre of his bid for the Democratic presidential nomination. More surprisingly, last month Neel Kashkari, a former Goldman Sachs executive and the new president of the Federal Reserve Bank of Minneapolis, said that more still needed to be done to shrink the largest banks.

Naylor's proposal suggests that a committee be created to study whether breaking JPMorgan and Citigroup into smaller pieces would be a good thing for the bank's investors. The recommendation from Naylor is that the board "act to explore options to split the firm into two or more companies, with one performing basic business and consumer lending with FDIC-guaranteed deposit liabilities, and the other businesses focused on investment banking such as underwriting, trading and market-making. Divestiture would also give investors more choice and control about investment risks." The largest banks already face new regulations that penalize them for their size, and most of them are moving to slim their operations.

In response to Naylor's proposal, which was included in Citigroup's proxy statement released on Wednesday, the bank said that its executives had been regularly evaluating and taking actions to streamline the company. As evidence, the bank pointed to the paring down of Citi Holdings, a unit within Citigroup that holds many of its least desirable assets. Since the financial crisis, Citigroup has sold multiple assets including its subprime consumer lending unit, OneMain Financial, and most recently, its retail businesses in Argentina, Colombia and Brazil.

While Citi has struggled to satisfy investor questions about whether it has the right business mix, JPMorgan has been more successful and has continually posted record profits.

In its response to Naylor, JPMorgan argued that the company "continues to successfully adapt its strategy and financial architecture in the constantly evolving banking landscape."

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