The Wall Street Journal has reported that at least two of the candidates to replace outgoing Bank of America
Bank of America's Board of Directors will hear none of it, but the Board should reconsider.
In their article It's Time to End "Too Big to Fail", which advocates breaking up the big banks, fellow Fools Ilan Moscovitz and Morgan Housel addressed the real driver of bank mergers, and they hit the nail on the head. Blather about economies of scale and improving efficiency and shareholder value is just window dressing for the real impetus: Bank CEO compensation is strongly correlated with size (much as JPMorgan Chase
If a bookie warns a customer that he might have a gambling problem, and suggests he hold off on betting for a while, then the bookie is acting against his own financial incentives, and the customer is probably well-served to take the advice to heart.
Essentially the same thing is happening here. Candidates for CEO -- people whose compensation would be in large measure a function of the bank's size -- are suggesting that the bank get smaller. That says volumes.
It says even more that one of those candidates, Michael O'Neill, is a director of Citigroup
Yet Bank of America's Board -- a dysfunctional collection of hunting buddies, extinct volcanoes, and the odd Faulknerian idiot man-children -- dismisses this advice out of hand, and insists on doubling down on the same failed strategy that got them where they are today. It's as though our fictional gambler decided to go double-or-nothing on the Washington Generals.
What was that about the definition of insanity being the act of doing the same thing over and over yet expecting different results?
It's enough to make you pity Bank of America's shareholders, except that none of this is new. Bank of America isn't doing anything to its shareholders today that it wasn't doing 15 years ago as NationsBank. So the only people left in the stock are presumably either hard-core masochists, or else suffering the most acute case of Stockholm syndrome since Patty Hearst.
Inevitably, I suspect that the current crop of financial conglomerates will be broken up, either sooner (by the government) or later (by managements that finally see the light). Even archetypical empire-builder James "Jimmy Three-Sticks" Robinson III's American Express