Splitting Up Bank of America Makes Sense -- If You Ignore All the Facts
[Note: This item was updated on Friday, Sept. 9.]
There's been a lot talk about Bank of America (BAC) splitting into commercial and consumer units. Question: Which one gets stuck with the $30+ billion in potential lawsuit damages?
The talk has gained a lot of volume in the wake of CEO Brian Moynihan canning execs Sallie Krawcheck and Joe Price, and creating two COO positions where before there had been none. Also adding to the noise level: Moynihan is giving a talk Monday night where he will lay out a proposed re-org for the nation's largest consumer bank. The press is running rampant with speculation the bank may layoff from 28,000 to 40,000 employees.
So amid all the re-org speculation no surprise the idea of splitting up the company would get some attention. The theory behind this conjecture is that BofA is worth more in parts than it is a whole. That is definitely true. Merrill Lynch actually makes money, while Countrywide only makes debt.
Splitting up the bank would also rid the financial system of an institution that has accreted so many parts it is way, way, way to big to fail. Investors in BofA definitely want it to happen. They would love for Countrywide to go somewhere it could declare bankruptcy all by itself while Merrill continues to make money. Buzzy Geduld, who owns more than 2.5 million BofA shares, told the New York Times:
As a stockholder in Bank of America, I feel like Merrill Lynch would be worth $7 a share on its own, at least. I think the upside is terrific.A moment of sympathy is due to Mr. Geduld, who never meant to wind up with a couple of million of shares of BofA. (Who would?) He got stuck with it because he owned a lot of Merrill stock when BofA took over.
So far BofA executives (those who still have jobs) have denied any such sell off is likely. I have to think they're right -- especially because it's hard to believe even a Federal bank regulator would sign off on the deal.
But sunnier days are undoubtedly ahead, no matter what action the bank takes. Just ask FRB analyst Paul Miller who said, "Litigation aside, there's nothing wrong with this company." And aside from the gaping hole, the Titanic is a fine looking ship -- but I'm still not booking a trip on it.
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