Morgan Stanley, trading at less than half of its liquidation value, could be worth as much as $32 a share in a breakup, said Michael Mayo, an analyst at CLSA Ltd.
Short-sellers betting against Morgan Stanley would be “blown to Neptune” if the New York-based investment bank heeds calls for the biggest U.S. financial firms to be split into pieces, Mayo, 49, said today in an interview on Bloomberg Television’s “Street Smart.” The stock gained 2.7 percent to close at $12.96 in New York.
James Gorman, Morgan Stanley’s chief executive officer, said last week that the firm will continue to shrink its fixed-income trading unit, cutting so-called risk-weighted assets 30 percent from the third quarter of 2011 by the end of 2014. Mayo said that reduction should be closer to two-thirds.
“This is not a tough call,” Mayo said. “If you break up the big banks, at least in the case of Morgan Stanley, I think investors would be huge winners. I hope they can achieve this value on their own without a breakup, but they don’t have forever.”
Other large U.S. banks including Citigroup Inc. and Bank of America Corp. should consider breaking up, Mayo said. Citigroup, based in New York, has demonstrated over a decade of underperformance that it’s unqualified to play in the “major leagues” and should go back to the “minor leagues,” Mayo said.
Stockbrokers in Charlotte, North Carolina-based Bank of America’s Merrill Lynch unit would cheer if the division were sold to a private-equity firm, he said. The question about JPMorgan Chase & Co., based in New York, is whether the bank will be too big to manage once CEO Jamie Dimon leaves, Mayo said.
Jeanmarie McFadden, a Morgan Stanley spokeswoman, declined to comment on Mayo’s remarks, as did Citigroup’s Jon Diat and Bank of America’s Jerry Dubrowski.
Mayo said he disagreed with former Citigroup CEO Sanford “Sandy” Weill that the U.S. financial system had changed in the decade since Weill ran the bank.
Weill, who helped engineer the 1998 merger of Travelers Group Inc. and Citicorp Inc. to create the largest U.S. bank, told CNBC earlier today that it’s time to dismantle the nation’s biggest lenders. He said he altered his views on the merits of large banks because “the world changes.”
“I agree 100 percent with the conclusion that Citigroup should be broken up, but I disagree vehemently that the world has changed from the time Sandy Weill was CEO,” Mayo said in a telephone interview. “The same ill-conceived incentives that caused the financial crisis are still in place today.”
Weill, 79, stepped down as CEO of New York-based Citigroup in 2003 and as chairman in 2006.