BAC Bank of America Corporation

By Christina Rexrode 

It could have been Bank of America Corp.

Activist investor ValueAct Capital Management LP took Wall Street by surprise when it disclosed Monday that it had bought a stake in Morgan Stanley, flouting conventional wisdom that activists don't engage in banking because there are too many regulations to make a big difference in a company's strategy.

But the Morgan Stanley stake, valued at about $1.15 billion Wednesday, prompted a flurry of speculation about who might be next. Some Bank of America investors, frustrated by years of low returns, had reached out to activists, ValueAct included, to gauge their interest in getting into BofA, according to people familiar with the matter.

Some of these activists saw Bank of America as a possible investment, one of the people noted, but the bank's size makes it hard to accumulate a stake big enough to wield any influence.

ValueAct's 38-million-share investment in Morgan Stanley represented a stake of about 2%. Buying a similar proportion of Bank of America shares would cost more than twice as much, about $3 billion, based on Wednesday's stock price.

Bank of America's biggest shareholder, Vanguard Group, holds about 6% of the shares, according to FactSet.

On Wednesday, Bank of America was trading at about 64% of book value, less than Morgan Stanley's 84%, according to FactSet. Citigroup Inc. also was trading at about 64%.

Like Morgan Stanley, Bank of America has been making changes. Chief Executive and Chairman Brian Moynihan, in his six years at the helm, has significantly slimmed down the company, getting rid of jobs, offices and entire units. The bank last month announced new cost-cutting goals, and Mr. Moynihan has acknowledged that shareholders want better returns and that the bank is working on it.

The bank has also been trying to strengthen its relationships with top shareholders. The bank this year tweaked its annual letter, adding a message from the board's lead independent director and more information about the bank's governance structure and social involvement. Those changes came shortly after BlackRock CEO Laurence Fink -- whose company is one of Bank of America's biggest shareholders -- urged U.S. companies to not make themselves targets for "short-termism" -- an allusion to activists -- and to instead to provide shareholders with more information about their long-term strategy and the involvement of board members.

The bank was caught by surprise when shareholders protested the board's decision to make Mr. Moynihan the chairman without a shareholder vote in 2014. Shareholders eventually approved the measure, and bank executives have been meeting more regularly with shareholders since then. It also passed the Federal Reserve's stress test in June and received permission to raise its dividend.

--David Benoit and Liz Hoffman contributed to this article.

Write to Christina Rexrode at christina.rexrode@wsj.com

(END) Dow Jones Newswires

August 18, 2016 02:47 ET (06:47 GMT)

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