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Stock Market Could Plunge On ’Very High’ Risk Banks
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America’s big banks are the linchpin of the financial system and, in a replay of the 2008 financial crisis, threaten to pull down the entire stock market
because of the "very high" risk they pose right now, according to veteran bank analyst Richard Bove of the Vertical Group, in comments he made on CNBC.
To pay back their respective $45 billion federal cash infusions from the TARP program, both banks aggressively issued new shares, with Bank of America doubling
its shares outstanding from the end of 2007 to the end of 2010, while Citigroup increased its shares outstanding by about six times, the Journal indicates
Per Thomson Reuters data reported by Yahoo Finance, consensus third-quarter EPS estimates for these banks are, with comparisons to the same quarter
in 2016: JPMorgan Chase, $1.66, up 5.1%; Citigroup, $1.32, up 6.5%; Bank of America, $0.46, up 12.2%; and Wells Fargo, $1.03, unchanged.
As the big banks approach the third-quarter earnings season, Bove warns
that their profits cannot possibly justify the 12% rise in their share prices during the past four weeks, as evidenced by gains in the SPDR S&P Bank ETF (KBE).
JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) are scheduled to report third-quarter earnings on Thursday, while Bank of America Corp. (BAC)
and Wells Fargo & Co. (WFC) are due to report on Friday.
Indeed, he says that nearly all the big banks are "flat to lower in growth" than
they have been in the last few years, across almost all their products.