Citigroup, BofA should shrink to restructure: CLSA’s Mayo

Bloomberg

Citigroup Inc., Bank of America Corp. and Comerica Inc. should move faster to restructure, including selling more assets, to catch up with competitors that are generating better returns, CLSA Ltd.’s Mike Mayo said.
“All three of those banks have failed to create value for every year for the last eight years,” the analyst said. “So our question for the board of directors is, ‘If you’re not getting it done, what is your plan B?’”
Citigroup and Comerica both hold their annual meetings on Tuesday. New York-based Citigroup is facing a shareholder proposal that would require the firm to analyse a breakup of the company and then report those findings to investors, a suggestion that Mayo favors. Bank of America’s annual meeting is on Wednesday.
While Citigroup is a much safer company than it was before the financial crisis, it still isn’t generating returns above its cost of capital, Mayo said. One option would be for the company to sell its Mexican bank, Mayo said. Dallas-based Comerica should consider selling itself outright, according to Mayo.
“You have some banks like JPMorgan and Wells Fargo with very good returns,” Mayo said. “Citigroup has poor returns. That’s why our team’s going to the annual meeting on Tuesday to say, ‘Some of your peers are getting it done, it’s time for you to get it done.’”
Management needs to be held more accountable, and new pay proposals from regulators won’t be enough, he said.
“All the micromanagement in the world’s not going to do it,” Mayo said. “At some point, you say, ‘We’ve seen management teams come and go, let’s hold the board of directors more accountable.”‘
Citigroup Chief Executive Officer Mike Corbat responded on April 15 to a similar question from Mayo, saying that selling the Mexico business just to liberate some capital wasn’t the right decision. A spokesman for the bank referred to those remarks and declined to comment further. A Bank of America spokesman declined to comment, and a spokeswoman for Comerica didn’t immediately return a call and e-mail.