The idea that the huge financial services conglomerates should be broken up has been around for a long time. The fact the UBS (NYSE: UBS) is cutting itself into pieces has brought the debate back to the fore.

To some extent taking a company like Citigroup (NYSE: C) and carving it up would allow investors to get shares in some of the good divisions along with the bad. At that point, at least shareholders could decide what they wanted to hold. The original idea behind merging bank pieces together was that if one segment of the business got in trouble, others could do well. Earning would be supported through diversity. Recent quarterly statements have shown that theory holds little water.

According to the AP, "Ladenburg Thalmann's Richard X. Bove, one of the most outspoken banking analysts since the credit crisis began last year, wrote in a note that the 'concept behind the creation of JPMorgan Chase has broken down.'" Bove's view is not longer part of a tiny minority.

The trouble with the thinking is that it is hard to see how it would work in practice. Can Citi simply be split into four or five pieces, each with its won management and fate? It worked for AT&T 30 years ago, and investors were the better for it. Perhaps it is the banking industry's turn.

Douglas A. McIntyre is an editor at 247wallst.com.

More calls for breaking up the big banks originally appeared on BloggingStocks on Sun, 17 Aug 2008 11:40:00 EST. Please see our terms for use of feeds.