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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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March 31, 2008 12:01 AM ET
bear stearns as watershed Richard Bove calls Bear Stearns a “crescendo event” that forced regulators to take action, thus signaling a bottom for financial stocks.
With the range of actions taken by the Federal Reserve recently, the Punk Ziegel banking analyst says the financial crisis is over for the banks and securities brokers and suggests that investors now have a “once in a generation opportunity to buy bank stocks,” as he titled his March 20 report. “There are still problems with the economy, and we may still see eruptions at some of the banks,” he asserts, “but the financial crisis is over.” Mr. Bove’s willingness to make such calls has made him one of the more sought-after bank analysts, especially in the business journalism community. (A Factiva search shows Mr. Bove cited in 240 stories in major media outlets in 2007, up from 177 in 2006. He’s been quoted another 117 times so far in 2008.) Institutional investors regularly rate the 35-year veteran of the field as one of the most influential banking analysts in the market. Not bad, considering Mr. Bove plies his trade from the modest platform of Punk Ziegel & Co., a small New York City investment bank that was recently bought by crosstown financial services firm Ladenburg Thalmann. A couple of weeks ago, Mr. Bove issued a memo to media representatives stating that he would no longer make his research available to them or return calls to reporters because on “news days” he was routinely fielding 30 calls or more from the media. Fortunately, Mr. Bove made some time to discuss his recent change of heart on the banks with Financial Week. His argument is that the collapse of Bear Stearns was a watershed event. It convinced the Treasury Department and the Federal Reserve that the entire financial system was at risk and that drastic measures were necessary. “In a financial crisis, you look for a crescendo event indicating that the fear and panic has become so severe that definitive action has to be taken,” Mr. Bove explained. “Bear Stearns was that event.” The Fed’s unprecedented efforts to provide liquidity to both the commercial and investment banks has convinced Mr. Bove—in contrast to many of his colleagues in the analyst community—that the worst is over for the financial sector. “The only way that someone could feel that the financial problems aren’t over is if they think the regulators can’t deal with this. I think that they can deal with it.” He also believes that the Fed—with capital of $921 billion—will receive the help of other central banks. While the value of the dollar has plunged with Fed chairman Ben Bernanke’s loose monetary policy, Mr. Bove argues that foreign central bankers have no option but to support the dollar and their own export-dependent economies. Mr. Bove actually began to go positive on the banks last November and started upgrading stocks in December and January. “Clearly, I moved too soon,” he admitted. Still, he insisted, down the road this period will be seen as a very good time to have bought bank stocks. He currently has buys on money center banks Citigroup and Bank of America, as well as six regional banks including U.S. Bancorp, Wells Fargo and PNC Financial. He has only one buy—Lehman Brothers—in the brokerage industry. He makes no apologies for his strong opinions. “There’s a need for strong points of view in the market,” he explained. “If [CIBC World Markets analyst] Meredith Whitney says Citigroup is going to cut its dividend, or I say the financial crisis is over, it helps people crystallize their thoughts.” Increasingly, those strong points of view are coming from smaller research shops like Punk Ziegel. The decline of the large sell-side analysts began with passage of Regulation FD (Fair Disclosure), which reduced analysts’ access to chief executives and the valuable information they could pass on to investors. It continued with the global research settlement the Wall Street firms agreed to with then New York attorney general Eliot Spitzer, which decoupled research from investment banking. “We’ve been told by sell-side analysts that since the settlement, the job is no longer lucrative and no longer fun,” said Michael Mayhew, chairman of Integrity Research Associates, which studies equity research. The analysts at the big Wall Street firms may be down in the dumps, but it has proven to be an opportunity for smaller research shops. “The research profession has been debased,” Mr. Bove said. “When analysis becomes an intermediate destination for people, the quality of their research falls. They don’t want to upset people, so they pull punches and don’t make waves.” Making waves is what the job is all about for Mr. Bove, who has been a stock analyst since his first job with Wertheim in 1972. (He conducts much of his business poolside from his home in Lutz, Fla.) Take Bear Stearns again. While he sees the situation and the regulatory response as the turning point for the banking sector, he thinks J.P. Morgan CEO Jamie Dimon has made a mistake pursuing the troubled investment banking franchise. Most analysts think J.P. Morgan is getting Bear Stearns on the cheap, but Mr. Bove thinks the bank should have nothing to do with the broker. “I would have been looking for a retail bank with no balance-sheet problems,” he said. Mr. Bove currently has a “market perform” on J.P. Morgan. “It’s an extreme position, but I don’t think Bear Stearns has any value.” That’s OK, Mr. Bove. Journalists like extreme positions. FW
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