One on One with Richard Bove, Banking Analyst at Ladenburg Thalmann
Tuesday, July 22, 2008
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SUSIE GHARIB: Joining us now with more analysis, Richard Bove, banking analyst at Ladenburg Thalmann. Hi, Dick.
DICK BOVE, BANKING ANALYST, LADENBURG THALMANN: Hi, Susie.
GHARIB: Dick, before we get into talking about the bank stocks, I want to just ask you about this lawsuit that Bank Atlantic lodged against you yesterday over a research report that you did called "Who's Next" regarding which banks and thrifts might collapse. And they're accusing you of using faulty methodologies to determine whether a bank or thrift is near collapse. We'd like to get your comments on that.
BOVE: I would love to give them to you also. I would love to talk about the subject for the next half hour, but the lawyers who are handing the case told me that I'm not allowed to speak about it in any fashion, but believe me, at some point I wish I could talk about it.
GHARIB: Lawyers do say that. We do hope you'll come back on our program and talk when you're allowed to do. So let's move on and talk about the news of the day, Washington Mutual. It reports a huge loss. The stock in after hours goes up as much as 16 percent. It trims back. What kind of shape is Washington Mutual in, in your view?
BOVE: It's in very bad shape. I think that if you take a look at the earnings report that came out for the second quarter, you know, people were encouraged by the fact that Washington Mutual was able to increase its capital ratios and it was able to put more money into the reserve. But when you take a look at its non-performing assets, they went up by $2 billion in the quarter. So despite the fact that they wrote off $2 billion in bad loans, they actually still increased the non-performing assets by $2 billion, which means that the non-performing assets are growing at a faster pace than they can write them off. That is not a good sign.
GHARIB: And Moody's is saying that it's putting the company under review for a possible downgrade. Let's say that they do or whatever, is this - is Wamu going to make it? Is it going to survive?
BOVE: I think it's a touch-and-go situation, but when I work out the numbers, it strikes me that over the next three years, they have access to $42 billion either from earnings, reserves or the capital infusion that they got a short time ago and it seems to me that they've got about a risk of $32 to $35 billion in losses. So that would seem to suggest that they will make it. So I do believe they'll make it. However, I wouldn't certify it because it is a touch-and-go situation.
GHARIB: What's your take on Wachovia's outlook and its news today?
BOVE: Well, Wachovia had a horrible earnings result also and Wachovia also showed an increase in the non-performing assets despite writing off a significant amount of bad loans. The difference between the two companies is that Wachovia has a huge retail bank, which is very, very profitable and that retail bank, which is the largest bank on the east coast of the United States and the fourth largest in the United States is producing enough profit that Wachovia is not in any trouble whatsoever, even though its earnings are simply horrendous.
GHARIB: We've seen financial stocks really taking off over the last couple of days. Are you recommending any of your clients or investors to start putting new money into financial stocks?
BOVE: I absolutely think -- certainly we are not recommending Washington Mutual and we are not recommending Wachovia, but for Bank of America, Citigroup or PNC Financial, for BB&T, UnionBanCal, U.S. Bancorp, Wells Fargo, I think that they represent incredibly good values. I think that these stocks became massively oversold because of the hysteria of the past couple of months whereby it was believed that financial companies across the United States could not survive the current downtown turn in housing. We're now seeing in these earnings numbers is not only are they going to survive it, but that they show profits and in the case of some of the banks I mentioned, I'm sorry, they're showing increased profits.
GHARIB: So what is your level of confidence in banks and financials these days compared to a year ago, real quickly. We just have 20 seconds.
BOVE: I think that they're in much stronger and better condition because they have more cash flows that are positive and they have more capital.
GHARIB: All right. We'll leave it there. Thank you so much for coming on the program. My guest tonight, Richard Bove, banking analyst at Ladenburg Thalmann.
