Anthony Hilton: Irony as bankers ignore the sell-off mantra
Saturday 21 July 2012
I was intrigued to read this week that the stock market value of the big banks is now firmly stuck at typically at around half their book value, which means in theory that shareholders would find it more profitable to break them up and sell off the parts. I say in theory because it does assume there is someone out there willing to pay full value for the parts being sold. Lloyds, in agreeing Thursday's sale of 600 branches to the Co-op, had to let them go for a knockdown price.
Having said that, the investment bankers running most of these organisations believe as an article of faith that when the stock market does not fully appreciate the value of an asset, the business should sell it to someone who does, crystallising the hidden value for the shareholders.
It is ironic, however, that when it comes to their own businesses today, these bankers somehow forget the mantra. Lloyds only sold because the EU competition authority forced it to. Break-up and disposals might have been fine for their clients but not for themselves. This despite the fact that every day we have evidence that the banks as now constituted are too big and complicated to manage, and that customers, employees and shareholders would be much better off if they were broken up into smaller units.
It appears that primitive emotions still drive decisions in male-dominated boards. Size equates with success, shrinkage with failure, and efficiency does not come into it.
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