Mutual mastication

Old Mutual splits for good reason: it can

Old Mutual is splitting for a decent reason: it can. The Anglo-South African group took the bracingly unusual step on

March 11 of admitting its four main businesses have little reason to stay together. The same goes for other corporate entities, but the stars rarely align such that companies do anything about it.

First item on the sanity check: Old Mutual's break-up makes sense. The company's £9-billion market value could theoretically rise by a fifth if its four businesses - an emerging market financials arm, a UK wealth manager, a separately listed US asset manager and a stake in South African bank Nedbank - were split apart, according to Breakingviews calculations. New Chief Executive Bruce Hemphill didn't bring any sacred cows with him when he joined in November. European capital regulations don't give Old Mutual the credit its true solvency position implies. And South Africa's currency, in which the majority of Old Mutual's earnings are generated, fell 27 per cent against sterling in 2015.

All this potentially applies to another Anglo-South African group: Barclays. The UK bank has a new chief executive in Jes Staley. It also faces an irritating curveball in the shape of US and UK rules that force capital to be placed in separate geographical buckets, and a valuation of just 0.5 times its forecast book value, according to Eikon estimates.

Staley's main eureka moment thus far is to get out of Africa. But the real problem is an investment bank that persistently fails to make its cost of equity. A really ballsy move would be to unwind the remnants of Lehman Brothers in the US via a New York listing. Doing so would, if the investment bank could be listed at 0.8 times tangible book value, imply a value for Barclays of 320 pence, according to Bernstein Research - almost double its current share price.

Why do these no-brainers fail to happen? Most chief executives have little interest in down-sizing themselves. Staley, an investment banker, may not want to exit investment banking. And the market doesn't always react predictably - Old Mutual's shares fell five per cent in early trading on March 11, not helped by an implied cut to its dividend. Doing so when new equity issues are hard to pull off is even less likely. Old Mutual offers a template, but not one many will follow.