Concerns over loan losses, which include Alt-A and commercial loans, has caused analyst Dick Bove to downgrade SunTrust Banks (NYSE:STI), Fifth Third Bancorp (NYSE: FITB), and U.S. Bancorp (NYSE: USB), causing bank shares to plunge by 3.3 percent overall; the largest drop in the 24 industries represented in the S&P 500 for the day.
Another factor is worries over Bank of America (NYSE: BAC) being forced to raise more cash in order to pay back bailout funds quicker than expected. At one point their shares fell by over 7 percent during trading on Tuesday on these rumors, which they aren’t able to shake at this time; if indeed they are rumors and not the reality.
Other factors affecting the banking industry were comments by Federal Deposit Insurance Corp. Chairman Sheila Bair at the annual American Bankers Association convention in Chicago yesterday, where she said there are “serious challenges” still facing the banking industry.
Two aspects of the banks caused the downgrade from Bove: one, some of these regional financial institutions may not turn to profitability until 2011, citing SunTrust and Fifth Third.
Secondly, he also said the potential risk related to government interference in the banking industy could especially harm U.S. Bancorp, which Bove concludes is very vulnerable to these potential governmental actions.
Not only is the rest of 2009 looking bleak concerning exposure to bad loans, but it’s expected to ramp up in the first quarter for residential loans, with bad commercial loans increasing during the second half of 2010.
There is also little to hope for with new lending in these weakened area during the next year either, giving many banks little to look forward to in growth connected to these specific areas.
One side issue with all of this has been attacks on Bove from many mainstream economists who don’t like it that he’s not lining up with the government line of positive thinking and dubious data. So what they’ve been doing is attacking past projections of Bove where he wasn’t always right. The problem is you don’t hear the same thing happening to the false banking economic prophets who didn’t see any of this coming, even though it was being reported in many alternative media Web sites for years.
So to attack Bove for missing some of his forecasts is disingenuos by those who missed one of the biggest ones in American economic history.
