Oct 19 (Reuters) - Proposed and actual actions of the government to make banks public utilities will destroy the secular earnings growth of the industry, veteran banking analyst Richard Bove said.
The Obama administration is proposing a raft of new regulations aimed at preventing banks and other companies from taking on risks that could again threaten the whole global financial system. [ID:nN30471063]
Actions like raising capital requirements, restricting the use of derivatives, new credit card law that restricts banks’ ability to set prices, among others, are aimed at reducing the profit making capability of the banks, Bove noted.
Banks will see earnings pressure for the rest of this year due to a continued high level of loan losses, but there will be meaningful gains in earnings in the following three years as loan losses contract, the Rochdale Securities LLC analyst said in a note to clients.
While investors should buy bank stocks in anticipation of the intermediate earnings gain, it should be recognized that this will be a short-term gain and that stocks will have to be sold when they revert to public utility status, Bove said. (Reporting by Archana Shankar in Bangalore; Editing by Himani Sarkar)