Five Dumbest Things on Wall Street: April 17

Bove's Nonsensical Notes

Dick Bove has been passing bad notes instead of doing his homework.

Rochdale Securities analyst Bove argued in a report issued Saturday that Goldman Sachs(GS) would see greater benefit repaying Berkshire Hathaway's(BRK.A) $5 billion investment in the bank before reimbursing the government for its $10 billion preferred equity stake.

Warren Buffett's deal, signed last September, requires Goldman to pay him 10% annually for the use of Berkshire funds compared with a 5% dividend yield for the government. As part of the deal, Buffett's company also has the right to buy an additional $5 billion in common shares at $115 per share.

But while doing his math, Bove clearly did not do his homework. Under the terms of the government's Troubled Asset Relief Program (TARP), companies must pay back Uncle Sam before anybody else, including preferred shareholders like Buffett.

On Monday, Bove attempted to correct his error in a new note saying "even though it would make more sense to pay back Warren Buffet [sic] first, the government will not let Goldman do this." The veteran analyst went on to say that "hysteria has replaced sound thinking" during the financial crisis and that Goldman would be bending to the hysteria if it sold 80 million shares to pay off its TARP obligation.

Sorry, Dick, but sound thinking, like charity, begins at home. And we are only being charitable when we say you need to clean up your act.

Aside from misspelling Warren Buffett's name in two separate notes -- come on, he's the world's greatest investor, not an all-you-can-eat breakfast -- you just don't seem to grasp the mechanics of the TARP program. Before Goldman can repay the $10 billion, the government must first complete a stress test on the bank to determine if it needs additional capital. Those tests are expected to be completed by the end of the month, so all your scribblings are not just incorrect, but premature.

To his credit, Bove was proven correct in warning Goldman against selling additional stock. Goldman's shares sank 9% to around $118 a share on Tuesday in response to its sale of $5 billion worth of stock at $123 per share.

Then again, Bove's record as a long-term prognosticator has been as bad as his spelling. Back on March 20, 2008, after the collapse of Bear Stearns, Bove was close to hysterical when he was hollering about the "once in a generation opportunity" to buy bank stocks.

The Financial Select Sector SPDR(XLF), which tracks the nation's largest banks, was at $26 a share when Bove made that bold prediction. It now trades at just over $10 a share.

No need for a new note on that blown call, Dick. We can read the writing on the wall.

Dumb-o-meter score: 75 -- See Dick write. See Dick wrong.

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