We’re starting to feel a bit sorry for Ladenburg Thalmann banking analyst Richard “I’ve got a problem” Bove.
Here’s a man who, against all odds, loves his banks. In fact, he’s maintained his buy recommendation on Bank of America even after the company posted a $1.79bn fourth-quarter loss. He’s also a man who’s not afraid to place a few phonecalls to make his case. From his note on BofA (emphasis ours):
Prior to the current quarter, I made calls to a number of banks asking them why they did not preannounce their earnings if these numbers would prove to be a shock to the “street”. It is interesting to note that most companies did not want to answer the question. However, those that did fell into two categories:
• One group could see no reason why any bank would do anything like this.
• Others believed that now that they no longer provide earnings guidance, they have no “ownership” of street consensus earnings estimates. Therefore, they have no need to correct misestimates.
Inherent in these answers as well as in those that were withheld is the core belief that investors are at risk in buying these stocks. It is a game of caveat emptor from the perspective of these institutions. Since investors are unwilling to play this game the sellers are likely to stay in control in these stocks for a bit further.
At some point, however, core fundamentals must mean something. There are sizable amounts of cash and capital in these companies and these banks simply cannot be replicated. It would take decades to do this and much more money than the current capitalizations of the companies. Ultimately this should mean something to investors.
A cursory glance at Bove’s recommendations on Bloomberg, however, shows a swathe of negative returns the analyst has buys on stocks ranging from State Street to Citigroup, presumably all on the premise that the “core fundamentals must mean something” eventually. In fact, as you can see from the screen shot below, he doesn’t recommend selling a single company. Who said optimism was dead?
Of course, had you followed Bove’s advice and bought BofA stock circa Tuesday at its 20-year low of $5.10 you would’ve made a hefty profit on Wednesday, when an SEC filing disclosing BofA CEO Ken Lewis bought 200,000 shares sent the stock soaring almost 32 per cent to $6.72. Ditto, for Bove’s recommendation on JP Morgan, where CEO Jamie Dimon disclosed he bought 500,000 shares last Friday. Lucky Bove, we’d say.
Related links:
Richard “I’ve got a problem” Bove – FT Alphaville
Bank of America: How to lose $20bn of value in two trading days – WSJ Deal Journal
Bank stocks: Cheap? – Clusterstock