After their recent huge run-up banks stocks now are overvalued, says superstar bank analyst Dick Bove of Rochdale Securities.
Until the end of the year bank shares “are probably a little bit ahead of themselves,” Bove told Moneynews.com’s Dan Mangru in an interview.
“Bank of New York is up 200 percent, SunTrust and State Street are up 300 percent, Citigroup is up 400 percent, Bank of America 500 percent,” he points out.
“Yet most of these companies, other than State Street and Bank of New York, are going to lose money in the third quarter. And probably they’re going to lose money in the fourth quarter.”
While recession may have ended for the economy as a whole, the fact is that for banks it’s not over, Bove says.
“It’s certainly not over for the consumer either,” he says. The housing sector remains weak, retail sales are falling, and unemployment continues to rise.
Huge loan losses are the result, he says. “These loan losses are affecting every facet of the U.S. economy,” he warns.
As a result, Bove sees bank stocks correcting downward.
“But, longer term, and now I’m talking 12 to 18 months out, I think these are excellent investments.”
He defends the government’s bank bailout. With major banks failing, “the U.S. had to do something to create some confidence in the financial system,” Bove says.
The bailout was approved to buy toxic assets. But Bove thinks the government was correct to invest this money directly into banks instead.
“It worked,” Bove maintains. “I don’t think the money was misused in any way, shape, or fashion. I actually think these people could be viewed as American heroes.”
On the issue of bank failures, Bove thinks the final total will be 150 to 200.
“It doesn’t worry me, and that seems mean to say, because it’s probably going to be all community and smaller banks.”
During the last major banking crisis, the late 1980s savings and loan collapse, 3,000 banks where closed.
“This time around we’ve lost 25 banks last year, 72 this year. And we lose 150 to 200 when the crisis is all over and done with. That will be a very low number relative to what we’ve seen in the past,” Bove says.
As for the economy, he thinks good news is coming soon.
“I think what we’re looking at is the likelihood of inventories being rebuilt. Even though sales aren’t particularly strong as long as they don’t go down very sharply they‘re not going to go down as fast as inventories went down,” Bove says.
“So we need to rebuild our inventories, and that’s going to have a very positive impact on GDP.”
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