After crashing 50% in 2008, and then enduring another brutal 30% decline in 2011, investors could be excused for wanting to seek their fortunes somewhere other than in the KBW Bank Index (^BKX). But Dick Bove, financial sector analyst at Rochdale Sector, isn't running away from his picks, he's doubling down on them, and predicting (again) that the market's coldest industry is on the cusp of greatness.
"2012 has every indication for being a gangbuster year in terms of earnings, market share, loan growth, deposit inflows, liquidity, capital growth," Bove says in the attached video.
He says the process has already begun with European lenders selling packages of loans and credit card portfolios and even entire business units to their rivals in the US., in what he dubs "The American Bank Opportunity" in a recent note to clients.
"European banks have got to shrink," Bove says. "They also have to increase capital."
Bove thinks they'll do so by pulling out of non-Eurozone countries because that's the fastest and easiest way to get it done. It's a process and opportunity he likens to the exodus of the Japanese mega-banks in the 1990's following their rise to the top.
"That's what's happening now" he says, "but 2012 is when we come out the other side."
And what might the other side look like?
Bove is expecting to see continued improvement in trends, including the domestic economy and banking industry earnings that are at a 4 1/2 year high, have risen for 9 consecutive quarters, and "aren't as dirty (or cluttered with charges) as you think."
But for all their profitability and potential market share gains, investors are still not seeing it - or at least buying into it. Bove himself offered up an explanation for his erroneous "buy" calls in the sector this year: "I failed to understand that the fears in the market concerning banking were so great that the fundamental improvements in the economy, the industry, and companies like Bank of America and Citigroup would simply be ignored."
The final piece of his domestic bank thesis is based on evidence of loan and deposit growth, saying "inflow of deposits have been enormous because money is coming out of everything." And with deposit rates next to nothing, few would argue that for all their other issues, banks are definitely sitting on lots of cash.
Does Bove get it right this time? Are U.S. lenders poised to rally? Let us know in the comment section below or visit us on Facebook.