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Meme Of The Week Breaking Up Financials

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by Felix Salmon
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Nov 20 2007 12:00am EDT

Meme of the Week: Breaking Up Financials

Financial supermarkets sure are out of favor these days. In the wake of an FT report that both Citigroup and Merrill are considering issuing shares in their brokerage arms, the NYT today says that H&R Block could be broken up, with its Option One mortgage unit topping the "for sale" list.

None of these things makes a huge amount of sense to me. Smith Barney, at this point, is a brand name, not a business. Floating a minority stake in Merrill's brokerage arm could result in one of those situations like Palm and 3Com, where the subsidiary was worth more than the parent. And the idea of trying to sell a mortgage lender in the present climate is just crazy.

But financial stocks are weak right now, and at times like these the financial engineers start crawling out of the woodwork claiming to be able to "unlock value" or somesuch. The main thing they normally achieve, of course, is simply the generation of enormous fee income for themselves.

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