With a substantial portion of regional banks having already reported earnings, analysts and investors have generally been unimpressed, and the sector has trailed the market. There hasn’t been a ton to get excited about, JP Morgan analyst Steven Alexopolous notes, as only one-third of the small and mid-cap banks he covers are growing loans.
Now Rochdale Securities analyst Richard Bove, fresh from his assaults on Goldman Sachs (GS) and Wells Fargo (WFC) last week, is bringing his hatchet to the regional bank sector. On Monday, he downgraded BB&T (BBT), Northern Trust (NTRS) and Greenhill (GHL) to Neutral from Buy.
With BB&T, Bove is concerned that underwriting standards will suffer as the bank tries to increase earnings. “The first quarter results were not terribly strong despite the higher than expected bottom line result,” he wrote. “Yet, management’s presentation came as close to a hard sell as one can imagine. This leads me to believe that there will be a push to grow earnings by weakening underwriting standards; more specifically to buy syndicated loans.”
As for Northern Trust, Bove notes that the bank’s earnings seem stuck at the same level. “I have raised the question in the past concerning whether Northern Trust should sell because it has maximized its ability to grow internally. If management is not willing to sell it should consider divesting some of its less effective divisions.”
Greenhill simply doesn’t provide enough information to investors for Bove to continue recommending it, the analyst said.
But Goldman analyst Christopher Neezypor thinks the market has taken much of the bad news about regional banks into account and investors should watch the space closely for a possible sharp rebound in sentiment.
“[W]e believe it is during these periods of apathy that increased focus on the space becomes more warranted, as the regional banks tend to be volatile and when the reversion in investor interest occurs, the upside to the stocks is often quick and of significant magnitude.”
Neezypor upgraded BB&T to Neutral from Sell (yes, Neezypor and Bove now have the same rating, but one sees the quarter as an incremental positive, the other as a negative).
“[G]iven the recent weakness in the stock, we believe expectations have been adjusted downward and the risk-reward is more balanced.”
So, what's your point? How does this relate to his downgrade yesterday?
Bove has long been a fan of Citi and he did repeat his buy rating on the stock in March, 2008, when it was about $22.00 per share and he put a $34.00 price target on it at that time. I believe the 52 week low on the stock was about $21.00 at the time Bove reiterated his Buy. Now I am not particularly a fan of Bove, but to be fair you should put things in context before you start pointing to what turned out to be a really bad call. An obvious bad call? In hindsight absolutely; however, three years ago it was defenitely bullish but not irresponsible.
Keep in mind in March 2008 BB&T was selling at around $33.00 per share compared to about $41.00 a year earlier. I know for a fact that BB&T holders felt it was a screaming bargain in March, 2008 and in a historical context it was. Time changes things.