Dick Bove, over at Rochdale Securities, has come to the conclusion that since the start, everyone’s been wrong about this whole banking mess. Really, things were never as bad as they seemed.
In his second quarter review, Bove says that “at no time in the past year, have markets reacted rationally when looking at this industry. It was not on the verge of failure (ex the hysteria) last year; it is not on the verge of a rapid recovery at present.”
OK. So things are still a little bit on the eh-side, but give it some time, and bank earnings will grow by 300% to 500% from 2011 to 2015, he says.
“The swing factor in bank earnings has always been and will always be loan quality. In recent years, the deterioration in loan quality has destroyed bank earnings and management credibility. This pressure will continue through the remainder of this year. By the second half of 2010, loan quality could begin to improve based on an expected improvement in the economy and some signs that unemployment has peaked. Banks earnings will begin an unusually rapid climb at that time. The expectation is that earnings will grow by 300% to 500% from 2011 to 2015.”
Also, could people please come to an agreement for valuing banks? When that whole “hysteria” gripped the nation, everyone was all about that tangible common equity business. Then, when people started to relax a bit, valuation metrics changed and banks were to be valued on their normalized earnings. But that didn’t help either.
“This shift in valuation technique caused the stocks to rally by 300% to 1,000% or more from their lows. Panic was replaced by euphoria,” Bove writes.
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