Bank America Eva Analysis
By: Kimmel82 • Case Study • 3,160 Words • May 16, 2011 • 1,340 Views
Bank America Eva Analysis
Bank of America
EVA Analysis
January 1, 2011
Executive Summary
U.S. banking deregulation that started in the 1990s paved the way for Bank of America to cobble together its financial services empire. Since then, the bank has acquired dozens of companies for more than $260 billion. With its stock now worth less than half of that, Bank of America needs to admit its failures and break itself up. Bank of America is worth $53 per share broken up. A series of smaller companies would outperform the conglomerate in every respect. They would have more focused management teams and, in some cases, far more attractive secular outlooks than the parent. The businesses with attractive outlooks would have the opportunity of attaining [price-to- earnings] multiples the conglomerate will never reach. 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. In doing so, 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. Bank of America's five spinoff units would focus on commercial banking, corporate and investment banking, credit cards, mortgage banking and wealth and investment management. The EVA Analysis of each operating entity tells us that by breaking up bank of America will more than double shareholder value. This analysis shows that each separate entity would produce the following amounts: commercial banking $568, corporate and investment banking $828, credit cards, mortgage banking $218 and wealth and investment management $278. The total projected value would be around $246 billion.
EVA Analysis
Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 57 million consumer and small business relationships with approximately 5,900 retail banking offices and approximately 18,000 ATMs and award-winning online banking with 29 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange
U.S. banking deregulation that started in the 1990s paved the way for Bank of America to cobble together its financial services empire. Since then, the bank has acquired dozens of companies for more than $260 billion. With its stock now worth less than half of that, Bank of America needs to admit its failures and break itself up. Bank of America is worth $53 per share broken up. A series of smaller companies would outperform the conglomerate in every respect. They would have more focused management teams and, in some cases, far more attractive secular outlooks than the parent. The businesses with attractive outlooks would have the opportunity of attaining [price-to- earnings] multiples the conglomerate will never reach. 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. In doing so, 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. Bank of America's five spinoff units would focus on commercial banking, corporate and investment banking, credit cards, mortgage banking and wealth and investment management. The EVA Analysis of each operating entity tells us that by breaking up bank of America will more than double shareholder value. This analysis shows that each separate entity would produce the following amounts: commercial banking $568, corporate