Richard Bove: Banks Are 'Healthiest They've Been Since Depression'

Tuesday, 07 Jan 2014 02:38 PM

By Dan Weil

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U.S. banks are now safe as can be, says star bank analyst Richard Bove, vice president of Rafferty Capital Markets.

"They're the healthiest they've been since the Depression," he told Newsmax TV in an exclusive interview.

"The American banking system has more capital as a percentage of assets [than at any time] since the Depression," Bove said.

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"It has more liquidity as a percentage of assets than any time in the last 40 years, its loan-loss activity is below normal," said Bove, author of the new book "Guardians of Prosperity: Why America Needs Big Banks."

Editor’s Note: Retirees Slammed with 85% Pay Cut (New Video)

"The loan-to-deposit ratio is about 71 percent, which is the lowest it's been for about 40 years."

Uncle Sam is responsible, Bove says. "The government came in and forced them [banks] to build up the excess capital and the excess liquidity that they now have," he said.

"So the government should be credited with a win on that one, because the government did force these banks into a position where they are as strong as they are at the present time."

But there's a flip side, Bove says. "One of the costs of doing that, if you take a look at the excess reserves at the Federal Reserve, there's now $2.4 trillion there," he said.

Historically that amount has never surpassed much more than $1 billion, Bove says. "That $2.4 trillion shouldn't be at the Federal Reserve. It should be loaned out into the economy assisting economic growth," Bove said.

"It makes the banks a lot safer, it makes them sounder, but it also makes the economy weaker."

Bove thinks bank stocks will thrive in 2014. "If we take a look at the relative valuations of banks today versus where they've been over the last 25 years, even though they've moved up pretty sharply in the last 18 months, they're still not at average levels," he said.

"If we're going into a good economic period in 2014, and there's a lot of reasons why that will happen, then we're likely to see banks earn a lot more money in 2014." That's because more loans will be made, and interest rates will likely rise, Bove says.

He sees several reasons why the economy will improve:

• "Housing is improving."

• "Autos are doing better."

• "The higher cost of manufacturing in China is giving us a little edge on the trade balance."

• "We're becoming more self-sufficient in energy."

• "There's an enormous amount of money around."

• "It costs very little."

• "The government deficit is shrinking."

• "The upper 40 percent [of the population] are making a lot more money from their jobs, from their stocks, from the value of their houses, and, therefore, they're likely to spend more money."

Editor’s Note: Retirees Slammed with 85% Pay Cut (New Video)

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