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The U.S. banking situation may not be as bad as people fear or like to believe, especially now that Fast B 157 allows banks to make a clear distinction between credit losses and liquidity losses.
Actual bank losses are within a 2.5 to 3 percent band, while liquidity losses are from 25 to 30 percent says Richard Bove is financial strategist at Rochdale Securities.
(For the full Richard Bove interview, please click on the left)
“I think that you've go to bring the liquidity losses in line with the actual losses and – if you take a look at home equity loans it's a perfect example. In the home equity center it is believed that in the United States the decline in housing prices has wiped out all the equity behind home equity loans. Therefore, people believe that there will be 35 to 50 percent in losses on home equity loans. The actual losses on home equity loans are less than 2 percent. Why? Because people don't want to give up their houses and go live in an apartment for the next five to seven years,” Bove told CNBC.
He added that 2 percent is already a horrible number, but that 35 to 50 percent losses would never be achieved.
Bove believes that prospects are significantly improving for banks and that he’s recommending people get into them now.
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“I think Bank of America [BAC
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] is an absolutely steal at this price. I think there are other companies like Wells Fargo [WFC
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], U.S. Bancorp [USB
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]or PNC Financial [PNC
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], JP Morgan Chase [JPM
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] - all of these companies are going to produce decent earnings based on their operations without any sizeable write downs eliminating those earnings," Bove said.
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