Big banks should turn in reasonably good earnings in the first quarter on the strength of trading activity, while medium-size banks will likely report only mediocre results, analyst Dick Bove said Tuesday.
"I think there will be a split in terms of where the earnings show up. They'll be good for the big banks, won't be as good for the middle-sized banks," Rafferty Capital Markets' vice president of equity research said on CNBC's "Squawk Box."
Trading looked good on the currency and fixed income side, Bove said, which should further bolster large financial institutions.
As for lending, commercial and industrial loans performed well throughout the winter, which should boost big regional banks, Bove said.
Meanwhile, weakness in residential loans will be a drag on smaller regional and community banks, Bove said.
"Anything to do with residential lending, whether it's home equity loans or mortgages, did very badly," he said, noting the poor performance was not due to lack of demand, but government regulation that discourages banks from issuing home equity loans.
Banks need interest rates to rise only slightly in order for mortgage lending and other interest-based income to contribute more to earnings, said Marty Mosby, director of bank equity strategies at Vining Sparks.
"You just need 50 to 100 basis points in the short end of the curve to allow the large banks to be able to create a spread on their deposits," he said. "Right now it's zero. There's no way to create any income off these strong deposit franchises that have been generated since the financial crisis."
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"If interest rates can start to move up modestly by that 50 to about 100 basis points, the banks can double the S&P 500 (^GSPC) over the next 12 months." he said. "If you see the Fed back off and don't see the increase in interest rates, then the banks are going to underperform slightly."
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