Whitney, Roubini Too Bearish on Banks

Whitney, Roubini Too Bearish on Banks, Brown Says: Tom Keene

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By Mary Childs and Tom Keene

May 27 (Bloomberg) -- Nouriel Roubini and Meredith Whitneyare ignoring bank valuation in their forecasts for the sector,according to Thomas Brown, chief executive officer at SecondCurve Capital LLC, a New York hedge fund.

While Whitney and Roubini are correct in saying banks stillface losses, Brown said they’re overlooking that financialstocks are undervalued. A former bank analyst at DonaldsonLufkin & Jenrette, he was atop Institutional Investor’s analystranking eight times in the 1980s and 1990s.

“The biggest thing for both of them for the last 15 monthshas been a lack of attention to valuation,” Brown said in aBloomberg Radio interview today with Tom Keene.

Bank stocks in the Standard & Poor’s 500 Index trade for1.3 times book value, or assets minus liabilities. Thevaluation sank to 0.5 in March 2009 following the credit crisisthat intensified following the collapse of Lehman BrothersHoldings Inc. in 2008. The average ratio since 1993 is 2,according to data compiled by Bloomberg.

“If I’m right and earnings are continuing a recovery, thenthe valuations of these companies will continue to recover,”said Brown.

Whitney, the New York-based chief executive officer ofMeredith Whitney Advisory Group known for forecasting CitigroupInc.’s dividend cut in 2008, said in a May 4 interview onBloomberg Radio that the largest U.S. banks are susceptible toanother dip in the consumer-credit market.

Roubini, the New York University professor who predicted in2006 that a financial crisis was imminent and who is sometimesknown as “Dr. Doom,” wrote in a December posting on hiswebsite that the “vulnerabilities and imbalances” that createdthe credit crisis have yet to be resolved.

Outlook for KeyCorp

Brown cited KeyCorp, Ohio’s second-largest lender, as anexample of a bank with good growth prospects.

KeyCorp has rallied 39 percent this year to $7.97. TheCleveland-based company reported a first-quarter loss that wassmaller than analysts’ expectations.

“They will make money here in the second quarter,” Brownsaid. “When they report a quarter where they make money whereall their credit indicators are positive, that will be acatalyst to move KeyCorp’s stock higher.”

Columbus, Ohio-based Huntington Bancshares Inc. has done a“great job” recovering from the recession and focusing ongrowth, according to Brown. The shares had climbed 69 percentthis year.

Bigger banks have suffered from the uncertainty offinancial regulation and how restrictive it may be, according toBrown. While he has not historically been a “fan” of Bank ofAmerica Corp., he said the shares are “very attractive to me atthese levels.”

Shares of the Charlotte, North Carolina-based lender havegained 5.8 percent this year.