JPMorgan Chase (JPM) is pushing back against a shareholder proposal to let investors vote on whether the bank should consider taking itself apart.
The nation's biggest bank by assets has asked the Securities and Exchange Commission for permission to withhold a proposal by the AFL-CIO's Reserve Fund from proxy materials the company will send to shareholders this spring. The labor union wants the bank's board to form a committee to explore "an extraordinary transaction resulting in the separation of one or more of JPMorgan's businesses."
Bank of America (BAC), Citigroup (NYSE:C) and Morgan Stanley (MS) have received similar proposals from the American Federation of State, County and Municipal Employees and Trillium Asset Management, which represents the Benedictine Sisters of Mount St. Scholastica, a religious order in Atchison, Kan.
While others have called for the big banks to consider breaking themselves up, the proxy proposals represent the first such bids by both unions.
The AFL-CIO's proposal cites a multi-billion trading loss last spring at JPMorgan's chief investment office as evidence the bank may be too big to manage. The union wants a board committee to report on its findings within 120 days of the company's annual meeting.
JPMorgan says the proposal would interfere with its ability to run its business. "The company is of the view that it may properly omit the entire proposal and supporting statement" from its proxy materials because it relates "to ordinary business matters regarding the sale or divestiture of pieces of the company's business into smaller institutions," JPMorgan wrote in a Jan. 14 letter to the SEC.
JPMorgan also says it can withhold the proposal from its proxy materials because the union failed to provide shareholders with information about the cost of preparing the report or the risk of disclosing proprietary information the report may entail.
The AFL-CIO, which plans to supply the SEC with reasons why the proposal should be put to a vote of shareholders, says recent events highlight the need for JPMorgan's board to review alternatives to the company's current composition. "We saw with the London Whale and the report that came out last week that the company really didn't have a handle on the risk it was taking," Heather Slavkin Corzo, a senior legal and policy adviser with the AFL-CIO, told American Banker.
Slavkin Corzo adds that the union's demands have been supported by a recent settlement by JPMorgan with regulators over its handling of foreclosure reviews and a directive from regulators that the bank strengthen its safeguards against money laundering. "The issues keep piling on, so we're just asking that the company to create a shareholder value committee composed of independent members of the board to consider potential extraordinary transactions," Slavkin Corzo said.
The AFSCME says a breakup at any of the banks that have received the proposals could unlock value for shareholders. "We think there seems to be a consensus that the banks are too big to manage and their shares have been trading below book value for quite some time," Lisa Lindsley, the union's director of capital strategies, told American Banker. "That implies that the strategic value of having all these business units lumped into one holding company is not being perceived by the market."
Citigroup says it has substantially implemented the proposal by disposing of unwanted businesses. "The board shares the proponents' objective to enhance stockholder value, in fact the company has in the past several years undertaken a process of, overseen by a committee of non-employee directors, to divest non-core assets," Citigroup wrote in a Dec. 21 letter to the SEC. Citigroup said the bank has "dramatically reduced its Citi Holdings' assets from $715 billion in fourth quarter 2008, or 37% of the company's total [generally accepted accounting principles] assets, to $171 billion, or less than 10% of the company's total GAAP assets."
"The proposal would micromanage company management in terms of how they satisfy their duty to maximize profitability by placing too much emphasis on asset divestitures," Citigroup added.
A Bank of America spokesman declined to comment on the proposals while Morgan Stanley did not respond immediately to a request for comment.