Major Challenges on the Horizon for Commercial Banks

Investors should avoid bank stocks as the sector’s fundamentals will deteriorate in the coming months, closely followed analyst Dick Bove said Thursday on CNBC’s “Fast Money Halftime Report.”

Bove, vice president of equity research and financial sector analyst at Rafferty Capital, said bank stocks “are even more treacherous than you think.”

“Over the last six months the ability to sell loans has evaporated. Basically commercial and industrial loans, which were roaring at 7 or 8 percent year-over-year gains, are struggling to grow at 1 percent,” he said. “The one thing you can be sure of with the banks over the next few months is loan losses are going to grow pretty substantially.”

Bove noted that bank loan underwriting standards have worsened especially in the subprime auto loan market.

“If you take a look at the consumer sector, you’re seeing major difficulties arising, in selling if you will, credit card loans. You’re seeing difficulties in the automobile space,” he added.

On the flip side, Bove praised regional lender First Republic Bank saying it has “an ability to lock into a concept that is really working” by issuing shares and not buying back stock.

A First Republic spokesperson declined to comment for this story.


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