Additionally, many bank stocks weakened after litigation costs from the housing and financial crisis weighed on overall profits. However, Bove argued that the outlook has turned “somewhat positive” after the top 16 banks were charged about $300 billion in fines.
“The fines will still be there in the next five years, but they’re not going to be anywhere near what they were in the past five years,” Bove added.
Looking ahead, Bove pointed out that growth in loans could help support the industry. Total loan volume hit $8.25 trillion, led by lending to companies and commerce, and consumers could begin borrowing as the economy continues to expand.
“Driven by an increase in loans, you’re going to see earnings probably get back to $70 billion for the industry, and the stocks don’t reflect it at all,” Bove said. “You’re going to see a rotation into bank stocks, if nothing else, but the bottom line is you’re going to see a rotation into a group of stocks that are selling below their normal valuation and whose earnings are going to go up for at least the next two years.”
ETF investors are already shifting into bank stocks. For instance, KRE attracted $340.5 million in net inflows over the past month, IAT added $8.7 million, KBWB saw $110.4 million in inflows and KBE experienced $110.6 million in inflows, according to ETF.com.
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Max Chen contributed to this article.