The storyline for big banks since the 2008 financial crisis has been one of an earnings rebound, right? Not exactly, says star bank analyst Dick Bove of Rafferty Capital Markets.
"Get rid of all the impact of stock buybacks. Did companies show increases in earnings in the seven-year period?" he asks rhetorically. "The answer is clear as clear can be: they did not. Seven years, no increase in earnings."
And the government's massive legal actions against major banks won't exactly spark a recovery for them,
Bove tells CNBC. At this point, Uncle Sam is unwilling to let banks do much more than buy bonds to underwrite government debt, he argues.
"The problem is trying to make money. If the government is convinced that it's going to control the balance sheets of the industry and is going to control it in a fashion that doesn't allow it to make money, it's going to have a negative effect on the stocks."
The S&P 500 index has enjoyed an annualized total return of 16.6 percent over the last five years, compared to 13.7 percent for the S&P 500 Financials Index.
However, within the sector, Bove believes SunTrust, Bank of America, Morgan Stanley and BNY Mellon will outperform.
Meanwhile, the 2010 Dodd-Frank financial reform law has helped accelerate the shrinkage of small banks, according to a study by
Harvard researchers Marshall Lux and Robert Greene.
Since the second quarter of 2010 — around the time of the passage of the Dodd-Frank Act — community banks' share of the market "has declined at a rate almost double that between the second quarters of 2006 and 2010," Lux and Greene write.
The implications could be harmful.
"Dodd-Frank’s regulatory burdens are driving consolidation and could result in lending markets less able to serve core economic demands," Lux said, according to
Forbes contributor Carrie Sheffield.
"Particularly troubling is community banks’ declining market share in several key lending markets, their decline in small business lending volume and the disproportionate losses being realized by particularly small community banks," the duo writes.
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