Tags: Bove | Moodys | Bank | Downgrade

Dick Bove: Moody’s Bank Downgrade ‘Absurd’ Amid Improved Balance Sheets

Friday, 22 Jun 2012 07:52 AM

By Bob Willis

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Moody’s downgrade of 15 major international banks and securities firms is “absurd’’ because those institutions are in the best financial shape they have been in years, bank analyst Dick Bove tells CNBC.com.

“The banks have shown improvement in earnings in every one of the past 11 quarters year over year,’’ said Bove, vice president of equity research at Connecticut-based Rochdale Securities, citing gains in bank bonds. “This is one of the most absurd things that Moody’s has ever done.’’

Bove, who has advocated buying bank shares, said U.S. bank balance sheets had improved “dramatically” over the last four years, said CNBC. Their equity-to-assets ratio are the highest in more than seven decades, liquidity as a percent of assets is at a 30-year high and their reserves against bad loans are up, he said.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Moody’s Investors Service said it downgraded the banks, including Bank of America, Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley, because their long-term prospects for growth and profitability were declining.

Bove said the banks could easily withstand a moderate downturn and even a recession.

“Since we are not talking about a depression, nor a depression that’s worse than the one that occurred in the 1930s, I don’t see how a downturn of moderate size is going to cause any problem with banks’ balance sheet,” he said. “What it will do is to lower the growth of bank earnings.’’

Federal Reserve stress tests of banks early this year showed most large U.S. banks would continue to have enough capital, even in the event of unemployment reaching 13 percent and a 21 percent drop in home prices, CNBC reported.

Moody's lowered the banks’ credit ratings by one to three notches to reflect risks of losses from volatile capital markets, Reuters said.

"All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities," Moody's Global Banking Managing Director Greg Bauer said in a statement, according to Reuters.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.


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