Now is not the time to buy bank stocks, says Odeon's Bove

  • Even before coronavirus clouded the global economic outlook, Odeon Capital analyst Dick Bove was warning that the banking industry's business model was changing radically and would result in lower margins and profits for most of the companies in the sector.
  • He cites disruption from application of new technology, increased competition, and managements' focus on financial engineering for short-term stock gains rather than reinvesting profits in the business to ensure long-term growth.
  • The emergence of the coronavirus is intensifying the problems Bove previously highlighted as it impacts the economic outlook and the shape of the 1-month-to-5-year yield curve.
  • Banks' biggest problem is eroding loan quality, he writes. Loan losses are increasing and the fact that they're still lower than trend is irrelevant, he said.
  • "This means that the biggest contributor to increased bank earnings in the past decade is now going to cause earnings deterioration," he wrote in a note.
  • "This is definitely not the time to buy bank stocks. There are too many issues that must be considered and resolved before committing funds to this group," he concludes.
  • Note: YTD, the Financial Select Sector SPDR ETF (NYSEARCA:XLF) is down 11%, outpacing the S&P 500's 7.8% decline.
  • ETFs: XLF, FAS, FAZ, KRE, VFH, KBE, UYG, FNCL, BTO, IYF, IAT, IYG, KBWB, FINU, DPST, FXO, QABA, RYF, KBWR, SEF, FINZ, WDRW, RWW, FTXO, BNKU, BNKD, JHMF, BNKO, KNAB, BNKZ

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