A radical way for Bank of America to revive its flagging stock price and more than double its value would be to spin itself off into five pure-play operating entities, reports the Dow Jones Investment Banker.  On Monday, fund investor Michael suggested that Goldman split into 3 businesses.  Here's why the exercise makes more sense than ever - at least to some:  each operating entity becomes an easier story for investors to understand and a more manageable operating unit better situated for growth and less prone to systemic risks.  

• Commercial banking
• Corporate and investment banking
• Credit cards
• Mortgage banking
• Wealth and investment management

BofA's other 2 operating segments could be easily dealt with.  The deposits segment could become part of the commercial banking spinoff to create a national retail and commercial banking powerhouse serving the middle market.  The other segment - the bank’s equity investments, investments used in managing balance-sheet risks and other non-strategic assets - could be sold off in piece-meal transactions.

    Crunching the Numbers.   A sum-of-the-parts analysis implies a break-up value of between $250 - $290 billion, or about $25 - $29 a share.  Shares traded Thursday morning at $12.28.  Until it's recent rise, BofA’s stock had been drifting lower, which suggested a stock whose multiples (forward earnings, book value, tangible book value) pale in comparison to the bank's 5 largest competitors, and that needs to be fixed. 

Shareholders would benefit from the acceleration in their investment returns and have some upside via ownership in the five newly created entities. The financial system would benefit by having one less bank that is deemed too big to fail. 

Bank of America’s systemic risk has its roots in deregulation. Beginning in the mid-1990s, regulators passed a series of legislation that allowed a more active consolidation of the financial services industry.  Banks raced to merge, creating bigger and bigger footprints.  BofA was one of the winners in the consolidation race with more than 40 acquisitions under its belt since the passage of the Riegle-Neal Act of 1994, which allowed interstate banking and ushered in the modern merger wave.  However, the bank's stock has habitually traded at a discount multiple to its peers, partly due to its conglomerate discount but also weighed down by fears that another large, dilutive merger was just around the corner.

For further details, click onto:   [WSJournal, 12/8, "Why BofA ... Apart"]