Rochdale Securities analyst Dick Bove says banks may “quadruple” over the next two to three years as loan defaults decrease.
“Stocks are going to go much higher,” Bove told Bloomberg in a telephone interview. “The catalyst is the reduction in loan losses. That’s all that investors in banks care about.”
According to Bove, the financial industry has already hit a bottom in writedowns from the collapse of the subprime mortgage market that created depression-like conditions in the housing market and drove the economy into a severe recession.
A decline in provisions for bad loans may overshadow industry profits, Bove said. Many co.’s had to significantly increase loan-loss provisions during the financial crisis as the pressure on the credit environment intensified and the economy kept worsening.
Bloomberg: “Investors have decided they will bet on that rather than worrying about fundamentals,” Bove said. “The fundamentals are not good. The first quarter will not show any particular strength in bank earnings [earnings at banks in the S&P 500 are projected to fall 33% in Q1, before rebounding 63% in Q2 based on analyst esitamates]. What it will show is an improvement in loan quality and that’s all people are looking at.”
Bove also explained during his interview his ‘sell’ rating on SunTrust Banks (STI) and Wells Fargo (WFC).
The SunTrust downgrade is based on the belief that the co. is not making any money. “Why would I want to buy into a company that isn’t going to make any money for 12 to 18 months,” Bove asked.
On Wells Fargo, Bove said that “the earning assets of the company are declining, the non-interest income is declining and the non-interest expenses are rising.”
Bove has ‘buy’ ratings for Bank of America (BAC), Morgan Stanley (MS), Goldman Sachs (GS), JPMorgan (JPM) and Citigroup (C).