For the first time in more than 50 years Dick Bove will skip the upcoming US bank earnings season. The last one was brutal, with JP Morgan, Bank of America, Citigroup and Wells Fargo all reporting on a single Friday morning.
“It’s a very unpleasant period,” Bove said. “You have to meld appearances with figuring out what the hell is going on.”
Bove, a fixture on television, radio and media of every kind, had five TV appearances that day. Despite his long career, he confessed that he was still nervous before every appearance.
Bove, now 83, retired after the last earnings round and is plotting his next chapter.
“It’s a relief because every earnings season I’d ask when can I get out of this rat race,” Bove said.
During each season he made a commitment to write something on every company he followed. That was roughly 25 banks, including the majors, some large regionals and government-sponsored entities that had become the bane of his career – Fannie Mae and Freddie Mac.
“I would always tense up and pump out something,” Bove said. But come April 12, when JP Morgan opens the bank earnings season again, Bove will sleep in.
“I wouldn’t be honest if I said I didn’t miss the intellectual challenge,” Bove said. Right now he’d be consumed by the activity surrounding New York Community Bank, but he says he will not miss the intense pressure to come up with a view on every bank just as it reports results.
Still, being an analyst following banks was a great job in a great industry, Bove told IFR.
During his long career he built a reputation for offering unfiltered opinions on banks, their executives and financial markets in a way that makes it surprising that he’d be at a loss for words or a point of view – ever.
Case in point: as he walks away from his career as an analyst, he is doubling down on his long held view that there are warning lights flashing.
“From a broad standpoint it's clear to me that the banking industry is in a lot of trouble. Not because of a particular financial issue. But because they have lost market share and the ability to compete,” he said.
Banks are being picked apart by their non-bank peers and regulated banks will continue to have a hard time, he said.
“I wouldn’t be surprised if at some point in the next five to 10 years banks aren’t reduced to collecting deposits and investing the money in government bonds and having some small amount of lending activity on the side," he said.
“That’s not a financial risk or a risk to the system or the economy – it’s just saying that banks don’t have a very bright future.”
Wertheim heyday
Bove has worked for more than 17 brokerage firms during his career as he earned a reputation as being the country’s most quotable bank analyst.
His clear favourite firm to work for was Wertheim & Co, an investment firm founded in 1927 and one of the first to have a research department. Into the 1970s it mailed research reports with onion-skin paper and a gold staple in the corner.
“I worked there for 11 years. If you love research and delving into a company and specific issues, working for one of these research oriented firms was absolutely delightful,” Bove recalled.
The golden age for research came to an end after analysts mostly missed the 1973–74 collapse of the stock market and everyone decided: who needs these analysts? They became subsets of corporate finance and later an appendage to trading departments.
Still, he said the high points in his career came with prescient calls on the US housebuilding boom and bust in the 1970s and the collapse of the US subprime market in 2006, a powder keg that led to the 2007/08 banking and wider crisis.
“It was so evident to me that these modified mortgages were time-bombs that would destroy whatever was being done in housing,” Bove said.
Today, the challenges from non-banks is the pressing issue for the industry's leaders. Bove recalled that in the 1970s legendary banker Walter Wriston, CEO of Citigroup, created a bank holding company to compete with non-banks, which transformed the industry. Bove recalled being in a meeting when Wriston gave marching orders to his staff.
Bank CEOs today need to do something like Wriston. Be innovative and recognise the world has changed and adjust to meet the challenge.
Bove said there are a couple of CEOs capable of meeting the challenge. He has made no secret of being a fan of JP Morgan CEO Jamie Dimon – although he once told IFR that Dimon was overpaid. He reckons Citi CEO Jane Fraser is doing a good job, as is Goldman CEO David Solomon, and wonders why the latter gets such a harder rap.
“David Solomon fires a bunch of people and everyone goes apeshit over what a monster he is. Jane Fraser fires a ton more people and everyone goes apeshit over how wonderful she is,” he said.
Bove is less a fan of longtime BofA CEO Brian Moynihan, however, and the feeling may be mutual. Bove has been iced out at BofA for while.
“BofA is an extraordinarily well run bank but you can’t find a business that they are in where they are increasing market share, despite their protestations,” he said.
“The brilliance of Brian Moynihan was that he came in and cleaned the Augean stables – getting rid of all the bad shit. He made the decision that the consumer would be the strength of the bank. It was the right thing to do and he turned a disaster into this incredible company. Now he’s losing market share because the consumer is not where it’s at.”
Bove is also cool on asset and wealth management, which could become a problem for Morgan Stanley.
“That business is going to be taken apart in the next few years. Every company in the financial industry is going after upper-end earners – and who are they going to take them from?” Bove said. That will intensify price competition and hurt Morgan Stanley's earnings.
Bove has made many bold calls, and he knows what his worst was: Fannie Mae and Freddie Mac. He believed that after rescuing the mortgage warehouses in the financial crisis, the US government would free them from conservatorship. Wrong. They are still in conservatorship. "I believed it right up until the end and the stock fell apart,” he said.
Challenged
Anyone who’s talked to Bove over the years knows he believes that the US is on course to be upstaged by China and that the renminbi will become the next global reserve currency. Now that he has time to properly research the rise and fall of civilisations, he hopes to enroll in a PhD programme, near his perch in Tampa, Florida.
“Once I’m settled into my next chapter I hope to write a book on why the US will lose its status as premier nation to China, examining historical precedents for the fall of dominant sovereigns,” Bove said.
It's a bit different from his last book in 2013, called “Guardians of Prosperity: Why America Needs Big Banks”.
But first the octogenarian needs to set the groundwork: “I need to spend a year in a PhD programme where I can be challenged,” he said.
Refiled story: Fixes typo para 24
