Frankenstein's Monsters, otherwise known as the big banks

(Bloomberg) Shareholders of Wall Street banks who agree with former Citigroup Inc. (C) Chief Executive Officer Sanford “Sandy” Weill that the companies should be broken up face an obstacle: bondholders.

That’s because trading on Wall Street relies on borrowed money, or leverage, that can be obtained cheaply as long as the traders belong to a conglomerate such as Bank of America Corp., JPMorgan Chase & Co. (JPM) or Citigroup that gets federally insured deposits. Jefferies Group Inc. (JEF), a securities firm that isn’t part of a bank and can’t turn to the Federal Reserve for help, currently is charged more to borrow in the credit markets.

“If you divorce them from the mother ship, you’d also be divorcing them from the government at the same time, and that’s where the subsidy is,” Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University, said in a telephone interview. “The funding advantage is the key.”

With stock prices at or below liquidation value, Wall Street’s biggest banks are fending off calls to break up from stockholders, analysts and industry veterans including Weill. The firms are too complex to manage, over-burdened by regulation, and a risk to taxpayers, their critics say. ...................(more)

The complete piece is at: http://www.bloomberg.com/news/2012-09-03/breaking-up-banks-is-hard-with-traders-hooked-on-deposits.html