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Prepare for a 'lackluster' quarter for the banks: Bove

Talking Numbers

Dick Bove, Vice President of Equity Research at Rafferty Capital, discusses what's next as bank earnings season begins.

Tuesday morning kicks off bank earnings season. And, for many financial institutions, data will likely confirm that 2013 ended on a sour note.

While bank stocks are generally up with the rest of the market benchmark S&P 500 index over the past 12 months, banks themselves are expected to show declines  

According to well-respected banking analyst Dick Bove, Vice President of Equity Research at Rafferty Capital, the fourth quarter of 2013 may not be great even though the rest of the year was.

(Read: Three ex-Rabobank traders charged with manipulating Yen Libor)

I think that the fourth quarter is going to be lackluster at best," says Bove. "I think that 2013 will prove to have been the year that banks make more money than ever before in their history but it's not going to show up in the fourth quarter in that fashion."

Bove sees the banking industry as heading into a transitional period, with certain lines of businesses showing improvements while costs decline.  

"Mortgages are going down, commercial loans are going up," says Bove on lending volumes for banks. "Trading has been weak but trading should be very strong in 2014. M&A (mergers and acquisitions) will be weak [in the fourth quarter 2013 reports] but it will be strong in 2014. [Banks] are still going to be driving earnings as a result of lowering cost and getting down reserves whereas in 2014, will be doing more lending at higher margins."

(Watch: Debate It: Wells Fargo vs. JPMorgan)

For Bove, there are still bargains to be had among bank stocks provided the right metric is used.

"My theory has always been to buy the ones that are selling at discounts to book value," says Bove. "So, if you want me to buy one bank only, it would be Bank of America. If I could expand on that, it would be Bank of America, Morgan Stanley, and Regions Financial."

And, while JP Morgan Chase is set to report its earnings Tuesday morning, Bove doesn't believe it's out of woods yet, despite paying $20 billion in fines the US government.

(See: CNBC's Banks coverage)

"I definitely think that JP Morgan is going to be fined some more," says Bove. "JP Morgan has not come to the end of its regulatory woes because I'm convinced that the United States government wants to see this bank get rid of a certain number of its businesses. Therefore, even though the stock has done really well, I really think there's a change that's occurring inside this company which is going to affect its secular earnings in a negative fashion."

To see the full interview with Dick Bove on what's next for the banking sector as earnings come in, watch the video above.

 

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