NEW YORK (
) - Increasingly skeptical Rochdale Securities analyst Dick Bove has cut his rating on
to "sell" from "neutral" on Monday citing an economic slowdown and a decline in operational earnings.
Aside from an expected slowdown in the economy, which would likely affect all banks, the analyst expects the regulatory environment to remain negative. On Friday,
governor Daniel Tarullo suggested "systematically important financial institutions" may have to increase their capital beyond the Basel standards by as much as 100%.
"If Tarullo is right and the Fed is really serious, it will have an unbelievably negative impact on banks and in my view the economy," Bove told
. "It will require the top 20 banks to raise capital by atleast 20%, about $350 billion worth, which they can't do. They will be forced to shrink their balance sheet dramatically and to dump loans even quicker than they have been doing."
Bove is also unimpressed with Wells Fargo's operational performance in recent quarters. "Wells is not handling the environment particularly well. Loan loss provisions have been declining, but if you exclude that, operational earnings have been declining on a sequential basis every quarter and the pace has been accelerating. Revenues are down both on net interest income as well as non-interest income, while expenses are going up."
Meanwhile the stock trades at a premium to book greater than
Bank of America
, the analyst noted.
Bove has become increasingly skeptical of the future earnings power of several banks in light of regulatory changes. Last
month he placed a "sell" rating on
arguing that regulators would "bleed" the firm.
-- Written by Shanthi Bharatwaj in New York
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