Is It Time To Buy US Bank Stocks? Balance Sheets Awash In Cash Create Potential For Enormous Upside According To Dick Bove Of Rochdale Securities
August 6, 2011 - The Wall Street Transcript has just published US Banking Report: An Investor offering a timely review of the Banking sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
Recent Wall Street Transcript Special Reports.
Richard X. Bove entered the securities industry at the end of 1965. Since that time, he has held positions as a Salesperson, Analyst and Director of Research with firms such as Wertheim & Co., Shearson and Dean Witter. For most of this period, his focus has been on companies in the bank and financial sector, but he has also covered building and business services companies.
He has appeared on the major business news channels over 400 times in the past few years. He is quoted regularly in the financial press, including The Wall Street Journal and The New York Times. At one time, he wrote a regular column for the American Banker.
Mr. Bove is a currently an Analyst with Rochdale Securities LLC. At Rochdale, Mr. Bove analyzes the banking and brokerage industries. His approach to stock selection and timing is heavily influenced by macro developments. He believes that these forces influence stock prices more than earnings over the intermediate term. Mr. Bove received a B.A. from Columbia University in 1962.
TWST: Who do you like best in the money center category and why?
Mr. Bove: The money center banks are not providing the type of operating earnings improvements that investors want. They want to see operating earnings, exclusive of loan loss reductions, improving. This is not likely for these companies near term. What is evident is that these banks are selling below their liquidation values in many cases.
Citigroup (C) just screams at you, and it is my favorite stock by far. I cannot see why a bank should sell at a discount to its net cash value, because as I say its tangible book and its stated book value is 100% cash. If a bank is selling at a discount to its net cash value, it strikes me that ultimately it's going to get up to its net cash value if nothing else.
However, I think Citigroup has also got one of the better business models in the industry. When John Reed was running the bank, he had dual theory. He realized that the rest of the world was going to catch up to the United States economically, and therefore, he wanted to be positioned to sell consumer finance products to the rest of the world. Number two, he wanted to have the leading position in banking technology in order to be the lowest-cost producer in the industry.
Sandy Weill, ex-CEO, threw those theories out of the window. He also threw the bank out of the window because it was bankrupt by 2008.
However, Vikram Pandit, current CEO, has put John Reed's concepts back in place. They are the right concepts. This means that Citigroup is positioned better, literally, than any other bank in the world.
There is no other bank in the world, not HSBC (HBC), not Banco Santander (STD), not Barclays (BCS) or you name it. There is no other bank in the world which is in as many countries as Citigroup is, doing business with as many people in those countries as Citigroup does, with as many corporate clients that are totally reliant on Citigroup. So if Citigroup sticks with Reed's core philosophy, which is to do business with the growing affluent around the world and do it with the best technology in banking in the world, then Citigroup will be unstoppable. It will be unstoppable with the best balance sheet in banking. That even makes you think about Citigroup bonds.
I mean, if you take a look at the spread between JPMorgan (JPM) bonds and Citigroup bonds, you have to ask yourself why does this spread exist when Citigroup has a stronger balance sheet than JPMorgan does. So Citigroup really is attractive in my view.
JPMorgan is also very attractive, because Jamie Dimon, company CEO, really is smarter than everybody else. The fact of the matter is that one aspect of his brilliance, which is perhaps not as fully recognized because he is such a dominant personality, is that he builds very smart people, and he mentors them into a position where they are extraordinarily capable in running their specific businesses. So in my view, JPMorgan has an incredibly strong management team at multiple levels, and that strong management team is generating better results on a more consistent basis than any other bank in the country, except possibly U.S. Bancorp (USB).
Therefore, I just think that it makes sense to have your money placed with managements that know what they are doing. Those will be the banks that I like the best.
In terms of Morgan Stanley (MS) versus Goldman Sachs (GS), I think Goldman Sachs is a phenomenally well-run company with phenomenal advantages, but I like Morgan Stanley better. The reason I like Morgan Stanley better relates to a positive view of James Gorman and his capabilities as a leader. I think that what is particularly evident about James Gorman is that, number one, he has an ability to conceptualize better than other CEOs, and number two, he has a demonstrated ability to execute once he has got his concept in place.
He spent a long time rebuilding the management team at Morgan Stanley, and he spent a long time developing a new strategy for Morgan Stanley. Quite frankly I think he is going to be very successful. So I really think that putting money with him will make some great deal of sense. I just think the guy is phenomenal. Clearly, in terms of describing the last two companies, I rely heavily on a view of management capabilities when picking a stock.
TWST: What is your outlook for this industry for the next 12 to 18 months?
The remainder of this 02 page US Banking Report: An Investor can be immediately viewed by purchasing online.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 202 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
For Information on subscribing to The Wall Street Transcript, please call 800/246-7673