In his almost 60-year career in financial services, including the last 43 years as a bank analyst, Dick Bove has had a front row seat to plenty of history-making events.
The 83-year-old chief financial strategist at Odeon Capital Group has witnessed U.S. banks’ Latin American debt crisis of the 1980s, the Global Financial Crisis in 2008, and the collapse of Silicon Valley Bank and other regional banks last spring.
Bove has worked as a bank analyst at more than a dozen firms, including Raymond James. But he tired of the analyst’s second job: helping to bring in investment banking business. So he opted for work at smaller firms, where he could do pure research. But then many of these firms went out of business, forcing him to move around.
“I’ve always worked on the fringe,” Bove said. He says he loves the business enough that he’s still working 14 hours a day out of his Lutz, Florida home. He also takes care of his wife, who suffers from multiple sclerosis.
Bove, who has well earned reputation as a gadfly, now thinks trouble is coming as government regulations hinders U.S. banks’ ability to compete. He admits that the regulations, however, may be necessary to prevent the next financial meltdown.
The veteran bank analyst also thinks that “too big to fail” banks are here to stay, precisely because of the government’s fear of financial collapse. On the lighter side, Bove calls himself a Jamie Dimon groupie.
We recently chatted with Bove about these and other banking issues. Here’s what he had to say.
Is the banking industry in a healthy place now?
Yes, in terms of not being at risk of a financial collapse. But not in its ability to compete in the world. The industry has pretty much been taken over by the government.
The cost of operations are way too high to meet regulations to protect depositors and to have a trading operation. There’s an inability to take risk that’s crippling the ability of banks to compete with non-banks and thrive in capital markets.
What makes the system as a whole safe?
Those regulations, which will continue. The Federal Reserve won’t risk being destroyed by waiting to see what banks do. Banks are getting a massive gift in [universal deposit insurance]. But they are paying a heavy price for it. Smaller, regional banks — the Jefferies of the world — are taking market share.
After the failure of institutions like Silicon Valley Bank earlier this year, what are the biggest problems facing these regional banks?
They can’t compete in the consumer area the way they did historically. You don’t have personal contact with customers. The banks have had to move to the commercial sector. At the same time, borrowing is cheaper in the capital markets. And fintechs, such as Sofi, also have taken slivers of the banking market.
Regional banks have problems everywhere. Regulators say they still aren’t regulated enough — so banks should expect heavier rules. The only solution for regional banks is offering a multi-product mix with lower costs to draw in customers.
If the Fed is done tightening, and interest rates have peaked, will that solve the asset-liability mismatch for regional banks?
Yes, if rates come down, which I don’t think will happen this year. As interest rates come down and banks’ Treasury-bond and loan valuations come back to par, no one will question the banks’ balance sheets. They’ll be in a better competitive position. They have solved their biggest problem, which is the run on banks from financial markets.
Do you think we’ll ever get to a scenario where the biggest banks aren’t too big to fail?
No. What we saw in last year’s March madness, when three major regional banks fell, is that the U.S. will protect every dollar of deposits in the banking system. The government felt the need to cover three fringe banks because it didn’t want a financial crisis.
So there’s no way the government can get rid of too big to fail. It won’t take the risk of a financial system collapse. Recent regulations have tried to reduce the risk, but they haven’t. The reality is that America is funded by its banking system. If you break that, you break the country financially.
What are the most interesting transformations in the banking industry that have happened over the course of your career?
The differences are staggering. In the 1960s banks were limited to operating in one state. They could only have one branch, 100 to 200 feet from their headquarters.
Everything was labor intensive. If you wanted an auto loan, you’d sit down with your banker, who knew your family. The back office was handled by individuals working off a ledger. Everything was oriented to the individual.
And how did things change?
Once the government let the industry blow out, finally allowing banks to operate throughout the country, there was a massive amount of mergers, scaling up, and automation. Now banking is very impersonal, unless you are high-net-worth or a very large corporation.
Banks need a massive amount of capital to function. And there’s massive government interference in the industry. National banking and automation have driven most capital to capital markets. Banks have lost a staggering amount of business.
Do you think it was a mistake for the government to let commercial banks dive into investment banking in the 1990s?
No, massive changes were occurring within the industry. All banks overseas were involved with investment banking. If American banks were going to service corporations the way foreign banks did, they had to have corporate finance capabilities.
How would you assess the career of Jamie Dimon?
I think he’s been phenomenal. I’m a Jamie Dimon groupie. He’s done a great job everywhere he has worked. When Bank One [under Dimon], combined with JPMorgan Chase in 2004, JPMorgan was in trouble. It wasn’t considered the premier bank in the world as it is now.
He brought it into the modern era. He has a broad vision of the financial system and the world. No one wants him to talk about that. But he’s thought out multiple layers, from the top down to how much ATMs cost.
He’s from Queens, as am I, and he has that Queens mentality — skeptical but friendly, and some cursing. He has proven his superiority.
Are you surprised that Goldman Sachs has struggled so badly since the global financial crisis?
Yes, the essential problem was that [former CEO] Lloyd Blankfein was a trader and believed in that business. He didn’t want to change the business model. When he was eased out of his position, it was clear Goldman needed to diversify, with more recurring revenue. So they went into retail banking, business development, service of middle-market companies and more.
What do you think of the result?
The decision was correct, but the implementation was bad. They decided to do nothing small, because they’re Goldman Sachs, and they were technology leaders. They would use their super technology to expand.
But the most advanced technology companies other than tech companies themselves are banks. They do massive amounts of small transactions. Goldman went in and blew it. They went too big and lacked understanding of the competition. They are now coming back from their mistakes. They should bite off little pieces and build for the next 20 to 30 years.
