JPMorgan Chase & Co. (JPM), Bank of America Corp (BAC): Making America Safe Doesn’t Mean Death to Bank Investors

You can call Goldman Sachs Group, Inc. (NYSE:GS) a lot of things, but from a financial-results perspective, it’s a broker-dealer. In 2012, nearly 80% of the company’s pre-tax profits came from the Institutional Client Services and Investing and Lending divisions, which in large part conduct the kinds of activities that Hoenig doesn’t want commercial banks participating in.

In other words, assuming you start with a good overall bank, if you split off the targeted activities, you could be left with a quality commercial bank and a quality broker-dealer investment bank. With the entities separate, more clarity could even lead to higher market valuations — which would obviously be a plus from a shareholder perspective.

Perhaps it would also be a long-term benefit to the operations of the split businesses. If Bank of America Corp (NYSE:BAC) has done nothing in the past few years, it’s proven that managing a financial superstore of that size is a challenging task — if it’s even doable. Hoenig contends that more focused banks may, over the long term, be better banks:

[Adam Smith] argued well that specialization most often increases productivity. I suggest that in the financial services industry, specialization would do much to increase productivity, innovation and other overall benefits to our economic system.

I remain highly skeptical the political will exists to break up the big banks in any way. That said, as a big-bank shareholder myself, that’s one “threat” that doesn’t keep me up at night.

The article Making America Safe Doesn’t Mean Death to Bank Investors originally appeared on Fool.com and is written by Matt Koppenheffer.

Matt Koppenheffer owns shares of Goldman Sachs, Bank of America, and JPMorgan Chase. The Motley Fool recommends Bank of America and Goldman Sachs. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase.

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