Mike Mayo Will Ask Citi The Tough Question It Doesn't Want To Answer At Wednesday's Shareholder Meeting

The once boring bank shareholder meetings are heating up and becoming more unpredictable. Analyst Mike Mayo's attendance at Citi's meeting this week is a good example.

The meetings are receiving more attention than ever since the financial crisis as investors and observers want to know more about what's happening at banks. In fact, bank analyst Mike Mayo bought stock in certain companies including Citi and JPMorgan Chase just to be able to attend the meetings and get some questions answered.When Citi shareholders meet on Wednesday in New York, Mayo, once a major critic of the bank, will be there to ask some tough questions. Among them, this:

If performance falls short or the value of the parts remains far in excess of Citi’s market cap, would a break-up get considered?

Now, plenty of big bank CEOs have been asked similar questions about breaking up their firms but this may be the first time the question is posed directly to Citi's directors, chairman and new CEO, Michael Corbat.

Interestingly a proposal that would require Citi to analyze breaking up the company was not allowed on this year's proxy after the SEC determined it "too vague." Mayo is hoping to get around that decision by asking the bank whether it would consider a break up if the sum of its parts continued to be almost 66% higher than its current share price. In a note today, Mayo explains:

There are 7 proposals on Citi’s ballot, but we wanted an 8th. Last month, the SEC refused to allow a proposal from Citigroup ’s proxy, which would require Citi to analyze breaking up the company and report back to shareholders. We dislike the SEC’s decision. We think this move hurts shareholders’ interests and our understanding of how capitalism should work. Trillium Asset Management had a proposal that would have required an independent committee to evaluate exploring extraordinary transactions and reporting on the results to shareholders.

A bank analyst asking questions at an annual shareholder meeting is unusual. Mayo bought shares of Citi, JPMorgan, Morgan Stanley , State Streetand Key Corp in order to gain access and ask questions. At Citi's meeting on Wednesday Mayo will also remind the bank that although it had the best first quarter among its competitors it still has a long way to go before proclaiming victory. Mayo:

Citi stock remains 90% below its pre-crisis level (or 50% lower after adjusting for its increase in share count) and, in our view, reflects the failure of resource allocation, oversight and management that stretches back to the formation of the company in its current form in 1998. As a result, we would not expect the board to confuse performance over 3 months (a quarter) with 15 years (quindecennial).

Mayo has been a major critic of Citi for a number of years but last fall he upgraded the bank after then CEO Vikram Pandit was replaced by Corbat. At the time Mayo said the move “seems to reflect a more proactive board and can improve poor governance.” Mayo currently has a BUY rating on Citi.