Dick Bove Sees Major Moves for Banks as Trump’s Deregulation Push Takes Hold
By Gavin Magor On January 30, 201807:45 AM Eastern
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One of the nation’s leading bank sector experts is long-time analyst Dick Bove. So, I took note of comments he just made. The short version? Just like me, he’s bullish on banks — and especially small bank stocks!
The tax law changes are a major positive factor, as are coming changes in interest rate policy -- two major bull-case factors we’ve written about recently. But Bove thinks the really big change for small banks will be the essential destruction and rebuilding of the regulatory regime.
President Trump has made a lot of waves by naming people to head major agencies whose sole mission (at least judging from their comments and history) seems to be to dismantle them. That’s largely true of the financial sector as well. Just about every major agency in charge of bank regulation has seen a change at the top, including of their boards of directors or governors.
“The new regimes do not agree with the policies of the old ones. The old teams were committed to government control of the American banking system. The new teams are committed to easing and adjusting a number of the old team's regulations,” Bove wrote in a column for CNBC.
“The new regimes have the power to do this as long as they stay within the broad guidelines of the Dodd Frank legislation and those guidelines are very broad indeed.”
The effect on the entire banking industry is hard to exaggerate, he continues. But the upshot is that the changes will “ease virtually all requirements for smaller banks.”
That’s quite a statement! Imagine a banking sector completely unleashed, with money still historically cheap and an economy chugging along at reasonable speed and growing.
As for interest rates, Bove says he doesn’t expect things to change too drastically, which might risk choking off growth as it kicks into higher gear. That’s because rate regimes usually take years to unfurl – as long as 25 to 30 years in modern times..
So, if you agree with us and Bove ... and are ready to find small banks that could prove to be quality investments ... we have good news. It’s a piece of cake using the Weiss Ratings Stock Screener!
The first step is to click on “Add Criteria”, then choose “Industry” in the “columns” drop down menu. Once that gets added to your Screener, simply type “Banks” in the window as the industry category. Next, you can click on the Add Criteria button again and select “Market Cap. Size” as your next sorting category. Once that’s done, simply choose “Small Cap” from the drop-down menu.
That will eliminate giants such as Citibank and Bank America, as well as larger super-regional banks that are already bumping up against their natural market-size limits.
Next you can do as I did, and add “Weiss Ratings” as another criteria for your sort. I made sure to seek out only “B+” (BUY) and above stocks. All you have to do is move the slider from the right and drop it anywhere on the scale to eliminate stocks with ratings below a given letter grade.
The resulting screen recently looked like this:
Data Date: 1/29/2018
At the top was Heritage Financial Corporation (HFWA, Rated “A+”), the holding company for Heritage Bank, which has 63 branches in Washington and Oregon. Founded in 1994, the bank offers deposit accounts, real estate loans for investment purposes, and business loans. Its market cap is large for a small cap, more than double the average of its cohort at $1.07 billion. The bank returned 24.5% to investors over the past 12 months.
Next is MainSource Financial Group. (MSFG, Rated “A+”) of Greensburg, Ind. It runs 90 branches of MainSource Bank in four states: Indiana, Illinois, Ohio and Kentucky. It’s also a “large” small cap bank stock at $1.01 billion, with a one-year return of 18.9% and earnings per share growth of a respectable 14.2%. The bank offers traditional banking services, and does mortgage lending and corporate banking as well.
Small cap investing can expose you to more volatility. But if Bove is right (and our own analysis suggests he is), small bank stocks are primed for serious growth in the years ahead thanks to the deregulatory push coming from the President. So, make sure you consider adding some banking exposure to your portfolio!
The tax law changes are a major positive factor, as are coming changes in interest rate policy -- two major bull-case factors we’ve written about recently. But Bove thinks the really big change for small banks will be the essential destruction and rebuilding of the regulatory regime.
President Trump has made a lot of waves by naming people to head major agencies whose sole mission (at least judging from their comments and history) seems to be to dismantle them. That’s largely true of the financial sector as well. Just about every major agency in charge of bank regulation has seen a change at the top, including of their boards of directors or governors.
“The new regimes do not agree with the policies of the old ones. The old teams were committed to government control of the American banking system. The new teams are committed to easing and adjusting a number of the old team's regulations,” Bove wrote in a column for CNBC.
“The new regimes have the power to do this as long as they stay within the broad guidelines of the Dodd Frank legislation and those guidelines are very broad indeed.”
The effect on the entire banking industry is hard to exaggerate, he continues. But the upshot is that the changes will “ease virtually all requirements for smaller banks.”
That’s quite a statement! Imagine a banking sector completely unleashed, with money still historically cheap and an economy chugging along at reasonable speed and growing.
As for interest rates, Bove says he doesn’t expect things to change too drastically, which might risk choking off growth as it kicks into higher gear. That’s because rate regimes usually take years to unfurl – as long as 25 to 30 years in modern times..
So, if you agree with us and Bove ... and are ready to find small banks that could prove to be quality investments ... we have good news. It’s a piece of cake using the Weiss Ratings Stock Screener!
The first step is to click on “Add Criteria”, then choose “Industry” in the “columns” drop down menu. Once that gets added to your Screener, simply type “Banks” in the window as the industry category. Next, you can click on the Add Criteria button again and select “Market Cap. Size” as your next sorting category. Once that’s done, simply choose “Small Cap” from the drop-down menu.
That will eliminate giants such as Citibank and Bank America, as well as larger super-regional banks that are already bumping up against their natural market-size limits.
Next you can do as I did, and add “Weiss Ratings” as another criteria for your sort. I made sure to seek out only “B+” (BUY) and above stocks. All you have to do is move the slider from the right and drop it anywhere on the scale to eliminate stocks with ratings below a given letter grade.
The resulting screen recently looked like this:
Data Date: 1/29/2018At the top was Heritage Financial Corporation (HFWA, Rated “A+”), the holding company for Heritage Bank, which has 63 branches in Washington and Oregon. Founded in 1994, the bank offers deposit accounts, real estate loans for investment purposes, and business loans. Its market cap is large for a small cap, more than double the average of its cohort at $1.07 billion. The bank returned 24.5% to investors over the past 12 months.
Next is MainSource Financial Group. (MSFG, Rated “A+”) of Greensburg, Ind. It runs 90 branches of MainSource Bank in four states: Indiana, Illinois, Ohio and Kentucky. It’s also a “large” small cap bank stock at $1.01 billion, with a one-year return of 18.9% and earnings per share growth of a respectable 14.2%. The bank offers traditional banking services, and does mortgage lending and corporate banking as well.
Small cap investing can expose you to more volatility. But if Bove is right (and our own analysis suggests he is), small bank stocks are primed for serious growth in the years ahead thanks to the deregulatory push coming from the President. So, make sure you consider adding some banking exposure to your portfolio!
Think Safety,
Gavin Magor
