The sum of two parts isn't always greater than the whole. Image source: iStock/Thinkstock.

Bank of America's (NYSE:BAC) business model, combining commercial and investment banking, is predicated on faulty logic. Its size hasn't translated into economies of scale, and far from providing benefits, the combination of investment and commercial banking has run up costs at the nation's second biggest bank by assets.

You can see the fissures in the universal banking model when you compare Bank of America's compensation and occupancy expenses to that of Wells Fargo (NYSE:WFC), which remains, for all intents and purposes, a commercial bank. Last year, Bank of America paid its employees an average of $154,000. The average pay at Wells Fargo, meanwhile, was $116,000. Bank of America's average compensation expense per employee is thus 33% higher than Wells Fargo's.

The problem is that investment bankers expect to make a lot more money than tellers and branch managers. This is evident even at the highest levels of Bank of America. Its CEO, Brian Moynihan, a traditional banker who traces his roots to the commercial bank FleetBoston Financial, made $13 million in 2014. But the head of its investment bank, Thomas Montag, who previously worked at the investment bank Goldman Sachs, earned $14 million.

A former high-level risk manager at both Morgan Stanley and Citigroup, Richard Bookstaber, touched on the lifestyle of investment bankers, and traders specifically, in his 2007 book A Demon of Our Own Design:

[Their] desks were covered with catalogs of conspicuous consumption: auction books on wines, brochures for custom-made silver belt buckles, and announcements about Ferrari shows. Every Thursday afternoon part of the conference room was cleared for a masseuse, who brought in her table and provided massages for the group.

Making things worse is the fact that investment bankers aren't content working in Class B office space; they want their surroundings to match their outsized egos. This comes through loud and clear when you consider that Bank of America's occupancy expense last year was $4.1 billion compared to Wells Fargo's $2.9 billion -- and, mind you, that Wells Fargo generates more revenue than Bank of America.

The $1.2 billion difference isn't because Bank of America has more branches than Wells Fargo. In fact, just the opposite is true. After trimming its branch count by more than 20% since 2009, it currently operates 4,726 financial centers. Wells Fargo, by contrast, boasts 8,700 locations, or nearly twice as many.

The difference lies instead in the state-of-the-art office spaces that house Bank of America's investment banking units. At the top of the list is the recently constructed Bank of America Tower at One Bryant Park in Manhattan, the sixth tallest building in the United States that was completed in 2009. It also leases a four-building campus in the heart of London, as well as a 62-story building in Hong Kong -- both of which serve its global and investment banking units.

Bookstaber touched on this as well when recounting his time on Wall Street:

Silicon Valley's roll-your-own office had nothing on [the office space of Salomon Brothers' traders].... Behind the trading desks stood an adult playpen, a large open space filled with various toys, including a Nintendo, a chess set with clock, a cappuccino machine, and a putting green with a computer-controlled mechanism that could alter the slope and pitch of the surface.

Wells Fargo, on the other hand, still occupies the same headquarters building that it's been in for decades in San Francisco. And it has no intent on moving, as American Banker noted in a 2013 profile of CEO John Stumpf: "Asked if Wells Fargo would ever upgrade its San Francisco headquarters or consolidate its scattered offices around the city into a gleaming flagship, something to rival Manhattan's spaceship-like Bank of America tower or its elegant new Goldman Sachs building, Stumpf scoffs: 'That's not us.'"

The fact that Bank of America's universal banking model has turned out to be less efficient than Wells Fargo's traditional model wouldn't come as a surprise to John Reed, the CEO of Citigroup when it led the way into universal banking in 1998. As Reed noted in a 2015 opinion piece in The Financial Times titled "We Were Wrong About Universal Banking":

[One of the things we were wrong about] was the belief that combining all types of finance into one institution would drive costs down -- and the larger the institution the more efficient it would be. We now know that there are very few cost efficiencies that come from the merger of functions -- indeed, there may be none at all. It is possible that combining so much in a single bank makes services more expensive than if they were instead offered by smaller, specialised players.

As a Bank of America shareholder myself, these things are cause for concern -- though I still believe that the current discount on its shares more than compensates for the shortcomings of its business model. That said, Bank of America will be forced to reckon with these issues once its crisis-related issues subside, thereby revealing its more fundamental problems. When that happens, I wouldn't be surprised to see Bank of America and Merrill Lynch go their separate ways. When that happens, just remember that you heard it here first.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.