Tags: richard | bove | banks | call

Bove: Commercial Banks Are a Buy

Wednesday, 13 Aug 2008 09:29 AM

Bank analyst Richard Bove, one of the first to call the real estate crash of the last year, now thinks the biggest commercial banks are turning the corner.

"I think the worst is behind us for the banking industry," Bove, an analyst for Ladenburg Thalmann and Co., told Moneynews.com in an exclusive interview.

"We still see big increases in loan losses in areas such as home equity, auto, and probably credit cards," he says.

"But if you look at the structure of the industry, you see there's more equity in banks than the last couple years. Their deposits are rising, their reserves are higher, their loan volumes are growing."

Put that together with major banks' stabilizing profit margins, and you've got a pretty good case for major bank stocks, as Bove sees it.

"It's just that you have this terrible loan-loss problem," he says. "It's like the old cliché that the pig has to go through the snake. When we finish with this loan-loss problem, I think you'll see that these big banks are in pretty good shape."

Bove's favorites include the country's largest three banks: Citigroup, J.P. Morgan Chase and Bank of America. He also likes the major regional players U.S. Bancorp, PNC Financial, and BB&T.

Bove doesn't think as highly of the big four investment banks. Bove has sell recommendations on Merrill Lynch and Goldman Sachs, and neutral ratings on Morgan Stanley and Lehman Brothers.

Many other analysts are bearish on the investment banks too, because of the widespread assumption that regulators will cut the amount of leverage these securities firms are able to deploy in their investments, if the firms don't decide to do so themselves.

Bove also sees some smaller commercial banks suffering major carnage. "Given the structure of the U.S. banking system, you probably have a couple hundred banks that are at risk of failing," he says.

Hundreds of bank failures sounds frightening, but Bove says context is important.

Simply put, the failures of even many small banks won't have much impact on the financial system, Bove explains.

"You have to look at this way: there are roughly 7,200 banks in the U.S. now. The biggest five banks have 52 percent of the industry's assets," he says.

And those institutions aren't in any danger of failure, Bove says.

"You likely will see failures among the 6,000 banks at the bottom. But if you add their assets together, they don't equal those of Citibank."

Last month, Bove circulated a list of banks he thinks are in danger of failure. One of the banks on the list, BankAtlantic of Fort Lauderdale, later sued him for defamation.

Bove is unapologetic about speculating on risk in the financial system.

"I think it's fair to say which banks might fail," Bove says.

"What depositors and shareholders want to know is how safe their institutions are. I don't think there should be any prohibition on the part of analysts, the news media or anyone else from speculating where the greatest risk is."

"The public has a right to know."

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Bank analyst Richard Bove, one of the first to call the real estate crash of the last year, now thinks the biggest commercial banks are turning the corner."I think the worst is behind us for the banking industry," Bove, an analyst for Ladenburg Thalmann and Co., told...
richard,bove,banks,call
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2008-29-13
Wednesday, 13 Aug 2008 09:29 AM
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