Richard (Dick) X. Bove, senior vice president of equity research at Rochdale Securities LLC, Lutz, Florida, is a prominent banking and brokerage analyst. A 1962 liberal arts graduate of Columbia University, New York, he began his Wall Street career in 1965. * Bove has worked as a salesman, analyst and director of research at a number of companies, including Wertheim & Co., New York; Shearson Lehman Hutton (merged with Smith Barney); Dean Witter Reynolds (later merged with Morgan Stanley); Raymond James Financial, St. Petersburg, Florida; and Hoefer & Arnett Inc., San Francisco. In 2004, he joined Punk, Ziegel & Co., New York; and was there when Ladenburg Thalmann & Co., New York, acquired the firm in 2008. He left Ladenburg Thalmann for Rochdale in 2009.
Bove is frequently interviewed on financial news television channels such as CNBC and Bloomberg Television; on Nightly Business Report, whose programs are distributed by American Public Television; as well as in major daily newspapers and business magazines.
Mortgage Banking caught up with Bove at his Florida office recently to ask about his outlook for the banking and mortgage banking industries.
Q: What is the current state of the banking industry?
A: It's very strong. If you pull out the Fortune 500 data for 2011, you'll see that Wells Fargo [& Co. at $15.869 billion in 2011 profits] makes more money than IBM [$15.855 billion] or Walmart [$15.699 billion].
You'll find that Citigroup [$11.067 billion] is one of only 15 companies in the United States that makes over Sic billion a year. They make more money than Coke [$8.572 billion], Pfizer [$10.009 billion] and Google [$9.737 billion]. JPMorgan [Chase at $18.976 billion] makes more money than all those companies mentioned. ... From that perspective, these banks are making a huge amount of money.
If you look at FDIC [Federal Deposit Insurance Corporation] data--and the FDIC-insured portion of banking industry is just about the whole industry--in [every one of] the last 12 quarters, [from the third quarter of 2009 to the second quarter of 2012], bank earnings have been up every quarter on a year-over-year basis.
Q: I have the FDIC data handy, and I see that the FDIC reports that all the banks it insures together earned $34 billion in the second quarter of 2012, compared with $29 billion for the second quarter of 2011. Going back to the third quarter of 2009, industry profits totaled only $2 billion--but that was higher than the $1 billion in profits in the third quarter of 2008.
A: That's right. And, if you look at the balance sheet, banks have more common equity as a percent of equity than at any point since 1938. If 75 years of experience in the banking industry has any relevance, American banks are overcapitalized. From a liquidity standpoint, you never go back to the 1930s and 1940s for a comparison, because they didn't make loans in that period. During most of the last 30 to 40 years, liquidity was not as high as it is today.
The loan-to-deposit ratio of the FDIC-insured banks is 71 percent--the lowest ifs been since the FDIC started publishing data in 1974.
So, from an earnings standpoint, they are doing really well. From a balance-sheet perspective, the industry is in a position to fund significant growth in the U.S. economy. The industry's balance sheet is unusually liquid and strong in terms of its capital base.
Q: Has the onslaught of new laws and banking regulations had any negative fallout on the economy?
Q: Could you give an example?
A: Take the capital rules. Take a look at a company like Comerica [Inc., Dallas, which is required to have] capital risk weighting at 104 percent of assets. This company is being forced to come up with more capital than would be normal if it was a dollar-for-dollar valuation of their assets. …