Dim future for Wells Fargo: Dick Bove
2:04 PM, E.T. | June 6, 2011Financials
The potent mix of a slowing economy and more stringent regulatory requirements will act a as a drag on the future earnings of U.S. banking giant Wells Fargo (WFC-N), according to a research note by Richard X. Bove at Rochdale Research.
Bove has lowered his outlook on the company to “sell” from “neutral” and revised his 12-month price target to $22 US from $32.50.
“Earnings from operations have declined in each of the past four quarters unlike the experience of its peers,” Bove wrote.
Bove says new liquidity requirements will force the bank to build high balances of lower return assets that will have a negative impact on margins—compounded by the fact that a slowing economy is weakening demand for loans.
The bank is also suffering from rising expenses resulting from its acquisition of Wachovia in the midst of the financial crisis, according to Bove.
“Given the current pressures on the company, it is more likely that it [the share price] will fall to a slight discount to book value,” he added.