Bernie Sanders: An Unlikely Banking Catalyst

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Includes: BAC, C, EVR, MC, XLF
by: NLTInvestor

Summary

Wall Street is worried about the turmoil a President Bernie Sanders might bring to the banks.

Turmoil will be good for bank shareholders who have bought beneath BVPS.

Big bank spin-offs will unlock shareholder value.

Everyone on Wall Street has been panicking about Bernie Sanders' "socialist" agenda. His promise to break up the banks (NYSEARCA:XLF) has definitely been on investors' minds in the past couple of months. Many consider it a negative. However, I'm here to argue that investors should actually see the possibility of a President Bernie Sanders as a catalyst to extract value from banks that are trading below tangible book value. Just to be clear, I'm not writing a political piece - this is an article to assure investors that Bernie Sanders will not make you lose money if you invest in the "big banks".

How long have Citibank (NYSE:C) and Bank of America (NYSE:BAC) remained below tangible book value per share? It's pretty ridiculous that these major banks cannot extract value for their shareholders while the CEOs continue to reap in multimillion dollar salaries. If Bernie Sanders follows through with his plan, shareholders will be immensely rewarded.

Assume that Glass-Steagall was reenacted. Citibank and Bank of America would have to spin off their investment banking operations, which have been dipping in revenue every quarter. Well, as many of you may know, spin-offs outperform the market. For those of you who don't, you can check out Joel Greenblatt's book.

That means that the entire investment banking division of these underperforming companies will have new management and be more transparent to investors. As a result, a higher valuation will be applied to this section of the company. For a comparison, you can take a look at the valuation of specialty or boutique investment banks like Evercore (NYSE:EVR) and Moelis (NYSE:MC). They warrant a higher valuation with price to earnings ratios of 51 and 18.

However, these boutique firms are certainly not beating Bank of America and Citibank in the league tables. I believe that the investment banking spin-offs of Citibank and Bank of America will allow a realization of shareholder value, and Bernie Sanders might be able to make this happen.

Or we can wait for a turnaround with Hillary.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.