Will the Market Force Bank of America to Raise Capital?
Companies / Credit Crisis 2011 Aug 24, 2011 - 01:51 AM GMTBy: Bloomberg
Rochdale Securities analyst Dick Bove told Bloomberg TV's Margaret Brennan this morning that Bank of America has sufficient capital and that you cannot "break the bank" by driving the stock price lower.
Bove also re-affirmed his belief that Goldman Sachs needs to shake up its management ranks.
Dick Bove on why BofA shares are under pressure:
"The reason why Bank of America shares are under so much pressure is because there is a large body of thought that the company will not be able to deal with what is called the put back situation. In other words, the bank has securitized $2.1 trillion of mortgages in the last number of years. There is a feeling that the bank could take losses of anywhere from $100 billion to $150 billion as it buys back a lot of those mortgages that are in trouble."
"My belief is that they won't buy back more than $35 billion. That's what I think their loss will be. But if you're convinced that the housing market is going to take another major step downward, that the economy is going to take another major step downward, then you're afraid that this bank is going to see its losses skyrocket again. Which, again, I don't believe is going to happen."
On whether Bank of America needs to raise capital:
"I don't see any reason why [Bank of America] is going to have to raise additional capital in the open market if there are no huge losses. If you look at the 28 analysts who make estimates on this company, I'm not aware of any one of them that is arguing that this bank is going to show a loss either next quarter, the quarter after that, or in 2012. If you shrink the balance sheet the way they are, and if you continue to show a profit the way they are, then there's no reason for the bank to have to go out and raise any capital whatsoever."
On whether the market may force BofA to raise capital:
"There is no impact whatsoever on Bank of America's balance sheet, based upon the price of its stock in the open market. If the price of the stock goes to a penny a share, it has no impact on the balance sheet of Bank of America. Bank of America sells the stock to the public, it takes in the money, and that is the end of the transaction as far as Bank of America is concerned. If you're going to break a bank, you're going to have a run on its deposits. That's not happening. Exactly the opposite is happening...Deposits are pouring into Bank of America."
"Or, as in the case of the fourth quarter of 2008, you've got to bust a bank by making it repay all of its short-term debt immediately. Bank of America has so much cash on its balance sheet that it can pay back all of its short- term debt, it could pay back a big chunk of its long-term debt and still have excess cash on the balance sheet. You can't break the bank by driving the price of the stock lower, particularly if the bank is as cash-rich as this one is with deposits pouring in as fast as they are."
Bove on how there needs to be a management shake-up at Goldman Sachs:
"I have been saying that for a year. I think there doesn't seem to be a lot of reason for [Goldman Sachs] to maintain its executive suite as it is maintaining it, if in fact stockholders are going to continue to lose money as they did yesterday afternoon as a result of machinations related to what is going on in that executive suite."
"I think Goldman Sachs has moved to a defensive stance in operating its business, which is a problem generating earnings. But I think the fact that they have so many executives which are under the microscope is causing that defensive stance. I don't think it is positive for shareholders."
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