The fear level in the market is so high right now that there has to be some solution to the greater problems before we can start to look at bank stocks on a fundamental basis, Rochdale Securities’ Dick Bove told me on The Kudlow Report.
Stocks suffered their worst loss in two weeks on Monday after comments from Germany’s finance minister caused investors to fear Europe’s solution to its debt crisis may not come fast enough. The solution, said Bove, starts with the recapitalization of European banks.
“The problem is you cannot resolve the Greek problem without debt forgiveness, and you can’t give Greece debt forgiveness unless you allow the banks to write-down the Greek debt,” he said. “And you can’t allow the write-down of the Greek debt until you get equity capitalization of those banks.”
According to Bove, that equity recapitalization has to come from the private sector. “I’m talking about the private sector putting the money into those banks to rebuild the capital similar to what happened in the United States in the last crisis here in 2008 and similar to what happened in the United States in the late 1980s, early 1990s,” he said.
Once that debt forgiveness happens, said Bove, the Europeans can start to rebuild their economies.