[基础分析] The Bull Case for BoA, Citigroup: Bove

何鸿燊

Posted Nov 24, 2009 07:30am EST by Aaron Task in Investing, Banking
Related: BAC, C, GS, JPM, XLF, MS, FAS

With the financial sector ETF up about 135% from its March lows, some of the banking sector's most notable bears are on the prowl again:

Last week, Meredith Whitney told CNBC "I haven't been this bearish in a year" and was even more downbeat in an interview with Bloomberg radio: "The banks are still grossly overvalued," she said. "People are expecting something great to happen in 2010 and I think they are going to be severely disappointed."

Last month, IRA's Chris Whalen told Tech Ticker the fourth-quarter is going to be a "bloodbath" for the bank earnings.

Dick Bove, banking analyst at Rochdale Securities, doesn't disagree the sector's earnings are likely to be weak in the fourth-quarter and first half of 2010. But as is so often the case, he's willing to provide the bullish ying to the bearish yang of Whitney and Whalen.

"The potential growth you get from buying these stocks at the current time is so attractive that it's worthwhile buying them and closing your eyes concerning what earnings are going to be this quarter or the following quarter," Bove tells Henry and me in the accompanying video.

That comment pertains generally to the sector, save regional banks, and especially investment banks exposed to the "explosion of M&A activity" Bove sees in 2010, including Goldman Sachs, Morgan Stanley, Evercore Partners and Lazard.

Incredibly, the quote above was made specifically in reference to Bank of America and Citigroup, the two struggling giants of U.S. banking:

Bove's case for Bank of America is fairly simple: If the economic recovery gains solid footing, loan losses will fall from an estimated $52 billion in 2009 to $10 billion in coming years. A commensurate drop of $42 billion in loan loss reserves would equate to earnings of $3.15 per share. Placing a multiple of 12 on those earnings, Bove says Bank of America should be a $36 stock by 2013, or about 120% higher than current levels.

Naturally, Citigroup is a more complicated story. "Citigroup has been destroyed," Bove says. "It doesn't exist anymore." What does exist now are two companies Citi Holdings - which Bove thinks will continue to shed assets - and Citicorp, which Bove says is a "very profitable company" with the potential to earn $1.25 per share. Using that same 12 earnings multiple, he says Citi stock could hit $14 in 2-to-3 years, roughly 230% above current levels.

Of course, it's worth noting Bove was too bullish about bank stocks generally, and Bank of American and Citigroup specifically, in 2008.


http://finance.yahoo.com/tech-ti ... g-Banks?tickers=BAC,C,GS,JPM,XLF,MS,FAS&sec=topStories&pos=9&asset=&ccode=

何鸿燊

The banking bull says that the nation's biggest financial institutions are ready for a big bounce once the economy gets back on track.

December 7, 2009: 12:27 PM ET


Richard Bove, banking analyst, Rochdale Securities  NEW YORK (Fortune) --
If you missed the rally in bank stocks this year, longtime analyst Dick Bove says not to worry. He predicts that large banks' shares will double by the end of next year.

The KBW Bank Index (BKX), which tracks 24 of the country's lenders, is up 136% since March lows -- more than double the S&P 500's rise. Bove is betting the rally can continue.

His bullish call is based on large banks' huge loan-loss provisions and cash stockpiles. Citigroup, for example, now has $244 billion in cash, almost double what it had last fall. According to Bove, banks haven't held such a high percentage of capital to assets since 1936.

He says that when the outlook for the economy improves, the banks will have to reduce their loan-loss provisions -- which are deducted from what would be pretax earnings -- thereby adding to profits. He sees banks posting three more quarters of losses; after mid-2010 "you'll start to see a huge surge in earnings," says Bove.

History repeats itself

Bove explains that this has happened before. For more than a decade starting in 1980, the nation's banks earned approximately $20 billion each year. After the market's collapse in 1987, however, banks were forced to dramatically increase capital.

Common equity and loan loss reserves dramatically rose, but when the 1991-92 recession hit, banks started using those excess reserves after being pushed the government to lend to consumers. Six years later, banks had increased profits more than four-fold to $90 billion.

"We're in exactly the same position," says Bove. "That was simply due to the use of excess capacity on the balance sheet.

Bove advises buying the following stocks:

Citigroup (C, Fortune 500)
Bank of America (BAC, Fortune 500)
Goldman Sachs (GS, Fortune 500)
J.P. Morgan Chase (JPM, Fortune 500)
Morgan Stanley (MS, Fortune 500)

One notable exception is Wells Fargo (WFC, Fortune 500), whose stock he cut to a sell rating after concluding that its recent earnings weren't sustainable. He warns against buying regional banks, many of which don't have enough capital to survive a potential collapse in commercial real estate.

Bove has a mixed record on recent calls. He foresaw trouble at Lehman Brothers and told clients to sell its stock four months before the broker-dealer collapsed. But he also told investors to load up on financial companies in early 2008 after declaring that the financial crisis was over. "It was a horrible year," he admits.

From bull to bear

Another well-known bank analyst, Mike Mayo of Calyon Securities, has a very different view. With the exception of Goldman, he rates most bank shares "underperform." He's the only Wall Street analyst, for instance, who recommends selling Bank of America shares.

Mayo expects bank stocks to decline as investors become scared by potential risks like rising unemployment, accelerating inflation, and still-falling home prices. He says that will cause investors to judge banks by their current book value instead of future earnings.

Wrote Mayo in his most recent industry report: "The improvement in bank financial statements will not happen overnight."