Stock buybacks may be on the rise, nevertheless noted analyst Dick Bove warned which will be something banks shouldn’t be doing.
“I am a big believer which buying back stock will be a horrible thing to do for a bank. the item’s like an oil company giving away oil for stock. You don’t do the item. You don’t give away capital for stock either if you are a bank,” the chief strategist at Hilton Capital Management said on “Closing Bell” Friday.
Public companies are anticipated to return more money to shareholders This particular year from the form of stock buybacks in addition to dividend increases. Through the end of April, S&P 500 companies are on track to give back a record $1 trillion to investors, according to S&P Dow Jones Indices.
After passing the Federal Reserve stress tests last June, several big banks announced plans to buy back more of their stock.
Bove said the theory will be since the big banks can’t grow larger, they can give away capital.
“I don’t believe which’s true,” he said. “We’re looking at a period where the need for money will be going to grow exponentially at a time when the availability of money will be declining.”
which’s because there will be at This particular point a “massive change” going on from the financial industry, he explained.
“For the last 20, 25 years if you wanted money the item was there,” Bove said. “at This particular point money supply will be not growing. the item’s not growing because the Fed will be shrinking its balance sheet.”
The Federal Reserve will be at This particular point from the process of winding its $4.5 trillion portfolio, known as its balance sheet. the item consists mostly of government debt accumulated from the years after the financial crisis.
Overall, Bove will be bullish on the banking sector, which has seen a strong first-quarter earnings season.
“The banks are entering a so-to-speak golden age in which they are going to be able to earn consistent increase in earnings, unless there’s a recession,” he said.
“If there’s a recession, they’re dead. Without which, I think the earnings are in a big upturn.”
He specifically likes the smaller-cap banks, which are “just killing” the big banks in terms of stock performance.
In fact, by 2000 to 2017, mid-cap bank stocks were up 20 percent a year on average, while the biggest universal banks were down, Bove said.
“There’s no comparison whatsoever.”
His top picks include Silicon Valley Bank, which he calls a “huge winner,” in addition to Pinnacle Financial.
— CNBC’s Fred Imbert in addition to Jeff Cox contributed to This particular report.