Donald Trump wants to bring back Glass-Steagall law

U.S. President Donald Trump said he was actively considering breaking up big banks. Trump's comments could give a push to efforts to revive the Depression-era Glass-Steagall law that separated commercial lending from investment banking. Reviving such a law would require an act by Congress.

Bank stocks rallied, with investors taking a win-win view: Breaking up the big banks would open business opportunities for smaller institutions, while the large Wall Street firms would be worth more as separate entities than they are combined.

"The theory has always been the sum of the parts is worth considerably more than the whole," said analyst Dick Bove, vice president for equity research at Rafferty Capital Markets. "You might find a lot of investors who say that if they're going to break up these banks, they're more valuable in pieces than they are together, I'm going to buy them."

Bank of America shares jumped 1.7 percent, a high for the session, while JPMorgan Chase was up 0.6 percent.

The SPDR S&P Bank exchange-traded fund was up 1.2 percent, also a high for the session.

"You'd have more competition in the industry," said the head of Whalen Global Advisors. "If investors could buy a pure-play JPM and not have to own Chase, that's a much better stock. That's a stock that trades at 1.5 to 2 times book value instead of 1."

Whalen said spinning off Merrill Lynch from Bank of America also could prove beneficial. BofA bought Merrill during the financial crisis.

The industry breakup would come with the revival of a Glass-Steagall-type law, which separated commercial and investment banks but was repealed in 1999.

The Glass-Steagall repeal is sometimes blamed for the financial crisis that peaked in 2008. However, many of the big institutions at the center of the crisis were not banking behemoths but rather investment banks or, in the case of American International Group, an insurer.

Source: Bloomberg

Trader Bozhidar Arabadzhiev

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