Tags: Bair | banks | breakup | homes

Sheila Bair: Big Bank Shareholders Should ‘Demand a Breakup Analysis’

By John Morgan   |   Thursday, 14 Mar 2013 10:54 AM

Sheila Bair, former chairman of the FDIC, renewed her call for the breakup of big banks in an op-ed column for Money magazine.

Bair said regulators let the largest banks get away with unreliable reporting, and that investors are not getting the kind of value they may think they are from big banks.

“After all, many bank watchers — including me — think that smaller, simpler institutions would make our financial system safer. Breaking up these behemoths could benefit your country and your wallet.”

Editor's Note:
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

Bair said big banks may appear undervalued, but it would be a mistake to believe it.

“Regulators allow big banks to partially calculate capital strength using complex mathematical models, and models, as we learned during the crisis, are unreliable,” she wrote.

“Further, regulators in my view don't require banks to adequately take into account all of their off-balance-sheet risks, like those pesky credit derivatives that caused such pain in 2008.”

Bair said bank analyst Mike Mayo studied the long-term performance of the 50 largest banking organizations, and concluded the largest three — Bank of America, Citigroup and JPMorgan Chase — yielded the worst results.

“They had the worst stock returns, the worst returns on equity and assets, the worst revenue growth — you get the idea,” she noted.

Bair’s advice to owners of megabank stocks is to “join the activists and demand a breakup analysis.”

In an interview this week with National Public Radio, Bair, who is now a senior adviser to the Pew Charitable Trusts, also said it is too early for the United States to celebrate a housing recovery.

Bair said banks and other lenders might be sitting on a large number of homes in foreclosure, and that as prices rise, the hidden inventory could come flooding back into the market and create new downward pressure on home values and prices.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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