Commendatori's Blog

Ask, and it shall be given you; seek, and ye shall find; knock, and it shall be opened unto you.

An Acid-Tongued Maverick Keeps Bankers on the Edge of Their Seats

Posted by commendatori on August 4, 2008

Lutz, Fla., is on no one’s list of world financial capitals. But from his home there on Tiffany Lane, 1,100 miles from Wall Street, Richard X. Bove can rattle the mighty of American banking.

Lately some of his pronouncements have caused a few headaches for the nation’s banks — and for Mr. Bove, one of the most outspoken stock analysts tracking them.

After a big bank in California collapsed in mid-July, Mr. Bove (pronounced Bo-VAY) rushed out a report with a provocative title: “Who’s Next?” What followed was a list of 107 banks, ranked according to two measures of their financial strength. The share prices of some of the banks promptly collapsed.

But No. 10 on the first list, BankAtlantic Bancorp of Fort Lauderdale, fired back. The bank said Mr. Bove’s numbers were wrong — and sued him and his employer, a small brokerage firm called Ladenburg Thalmann, for defamation. Mr. Bove would not comment on the suit. A lawyer for BankAtlantic said the bank planned to ask the judge to expedite the case.

The dispute over Mr. Bove’s call is a big switch from the usual charge leveled at analysts, which is that most of them are not bearish enough. After the dot-com bubble burst in 2000, Wall Street was criticized for promoting stocks to win lucrative investment-banking work. Even now, amid the housing meltdown and gloomy talk of a recession, “sell” recommendations are relatively rare.

But controversy is nothing new for Mr. Bove, 67, who has analyzed banking stocks for 26 years and become a familiar face on business news television. He has been fired twice during his career, once, from Dean Witter Reynolds, for advising investors to buy every bank stock they could (he was right — after he was fired, bank stocks soared). By his own account, his worst call was telling people to dump banks in the 1990s, during the Bosnian war, only to watch the shares rise.

Since 2005, however, Mr. Bove has gained a certain reputation as one of the few bank analysts to predict the blow-up in the housing market and subsequent problems at many banks. He is also one of the few whose advice, if heeded, would have made money for investors over the past year.

Mr. Bove often berates bank executives — “egomaniacs,” he calls many of them — and the regulators who oversee them. He peppers his down-to-earth reports with phrases like “yee-haw!” and he says he does not care whether the banks like what he has to say.

Even so, after BankAtlantic complained that Mr. Bove based his analysis on incorrect figures — he should have used the capital of the bank’s holding company, rather than of the bank itself, BankAtlantic said — Mr. Bove sent a note to clients explaining BankAtlantic’s view. BankAtlantic is not among the 27 companies that Mr. Bove regularly covers.

Fans of Mr. Bove are stunned by the uproar over his list.

“I’m pretty shocked, actually,” said Doug Kass, president of Seabreeze Partners Management, a hedge fund based in Palm Beach, Fla. “He is amongst the best pure security analysts, quite frankly, that I’ve ever met. He does not mince words, but his comments are founded on strong analysis.”

Mr. Bove, for his part, says it is not his job to worry whether banks like his reports.

“I don’t give a damn about what the company thinks,” he said by phone from his home office in Lutz. “It’s my job to think about: is this a good stock to buy or not? It’s the bank’s job to worry about their business.”

On a typical day, Mr. Bove starts work at 6 a.m. and keeps at it till 9 or 10 p.m. He turns out 500 to 600 reports a year. He works out of his home because his wife has multiple sclerosis and has lost her eyesight. He calls himself “a total nerd” because all he does is work and spend time with his seven children and 13 grandchildren.

But Mr. Bove is also something of a maverick. In the last few months, he has suggested that Morgan Stanley might have avoided its current problems if the company had not pushed out Philip J. Purcell as chief executive in favor of John J. Mack. He criticized Citigroup’s chief financial officer for disclosing information about write-downs during a conference call. And he accused Merrill Lynch of disclosing inadequate financial information in a recent press release.

Clearly Mr. Bove is not afraid of making enemies. Back in 2005, when he came out with his initial negative outlook on the housing market, a television anchor warned him that he might not have a job much longer. Soon afterward, Mr. Bove began downgrading the banks he covered, eventually putting a sell on 60 percent of them, even as others dismissed his prediction that “this powder keg is going to blow.”

“I was convinced that the financial industry was out of control,” Mr. Bove said. “It just smelled, it looked, it felt like this thing was going to crash. And we kept pounding on it.”

Mr. Bove grew up in New York City and got his start in finance in 1965, as a salesman for Blyth Eastman Dillon. He jumped to Wertheim & Company in 1972, where he worked as a construction industry analyst, and after a few other jobs in New York, he moved to St. Petersburg, Fla., in 1994, to join Raymond James.

He switched to covering banks in 1982, he says, because construction was in decline. “You’d be sitting around telling folks why things were no good,” he says. “It wouldn’t be any fun.”

Mr. Bove thinks he has an edge over most analysts when it comes to speaking the truth. At larger companies, he was pressured to tone down his criticism. Five years ago, he moved to Punk Ziegel & Company, a small firm that Ladenburg Thalmann purchased last spring.

“Here I can say what I want about Citigroup, when I want, and as long as I’m honest, they don’t care,” Mr. Bove says. “I just want to write what I want to write and that’s it.”

Sometimes, he mixes in humor. For instance, after Citic Securities, an investment company owned by the Chinese government, bought a stake in Bear Stearns last fall, he wrote: “Jimmy Cayne, Bear’s C.E.O., may start wearing red suspenders and playing Mah Jong instead of bridge.”

Mr. Bove remains negative on the prospects for investment banks like Goldman Sachs and Merrill Lynch. But he has upgraded several commercial banks this year. He thinks banks are healthier because of the new capital they have raised and because investors have pushed their stocks too low. But, once again, he is pushing against the grain — and he has yet to be proved right.

“Again, I’m early, and I’m fighting against the trends,” he says. “But the fact is that banks are too cheap.”

Article URL: http://www.nytimes.com/2008/08/04/business/04analyst.html?em

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: