Since the financial sector peaked in February, three months before the broader markets, no group has fallen harder than it has.
Even after the 30% plunge many, arguably most, investors still want nothing to do with banks and financial services firms -- except Dick Bove, the well-known Rochdale Securities analyst with the on-again, off-again love affair with the industry that is very much back on again.
"There are half a dozen banks in the United States which are selling at discounts to their book value when their book value is 100% cash," Bove says. "When a stock sells at that low a price below the liquidation value of the company... I am willing to buy it no matter how bleak the particular outlook may be."
In fact, some of the lenders in his universe are so undervalued, he says they're not just cheap, they're ridiculous. But he knows the day will come when that dislocation between price and tangible assets fixes itself.
"Ultimately, entrepreneurs will recognize an opportunity here [and see] that the bank is not being utilized properly," Bove says.
The banks certainly are not without their challenges, including regulatory, housing, and economic issues. Even so, Bove argues those issues are widely known, and he believes many banks are poised to prosper, including Bank of America (BAC), which recently announced it will get a $5 billion infusion from investing legend Warren Buffett. Bove says the bank had no choice but to take what he views as a bad deal for shareholders.
"Did it have to be done? I think it did," he says. "The credibility of the company had fallen so low that the cost of money to Bank of America was rising in the fixed income sector and therefore to control that cost of money, they basically had to make a deal that was anti-stockholder with Warren Buffett."
Other banks Bove considers cheap, whose net cash exceeds their common equity include: JPMorgan (JPM), Citigroup (C), BNY Mellon (BK), State Street (STT), Northern Trust (NTRS), and Synovus Financial (SNV).
As for the European banking crisis, Bove insists Ireland, Portugal and Greece will default, forcing European banks to "mark down the value of those loans on European bank books." Moreover, austerity programs promoted by the IMF and World Bank won't save debt-stricken countries from defaulting, Bove says, and no amount of lending will be able to assist these countries from meeting their debt obligations.
On an interesting side note in the aftermath of Hurricane Irene, Bove says natural disasters can bring banks business they otherwise would not have gotten. That's because victims who receive large insurance settlements deposit those funds and then take loans from the banks to rebuild homes and businesses.
- Dick Bove