Charles Schwab (NASDAQ: SCHW) has a market cap of more than $27 billion. Merrill Lynch's (NYSE: MER) is only $48 billion. That does not put much value on all of the Merrill businesses beyond its individual investor brokerage network. Because of metrics like that, there is speculation that both Merrill and Citigroup (NYSE: C), which owns Smith Barney, might do partial IPOs of their brokerage operations. It could do something for the shareholders of the companies. The institutional trading units of the big financial houses are dragging their value down. The mortgage-backed securities problems could keep it that way for some time.
"It is an obvious thing for them to do. The shares in the brokerage business would be much more highly rated than the parent's stock," one banker told the Financial Times.
The move could also give brokers who work at the private client groups a reason to stay. Any stock options they might get in their parents are probably not worth much. Offering a cut of a new public company could be a strong magnet for holding brokers.
The other benefit of such a move, especially at Merrill, is that the senior management of the brokerage unit feel that it is under-represented in the executive suite where most of the top brass come from trading and banking. Giving them a chance to run their own public company might fix that.
Douglas A. McIntyre is an editor at 247wallst.com.
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