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Banks Face an Uncertain 2013: BankUnited CEO

Thursday, 27 Dec 2012 | 11:54 AM ET
2013 Banking Winners and Losers
John Kanas, Bank United president & CEO, discusses how the banking sector is likely to navigate additional regulations next year.

The banking industry faces an uncertain regulatory environment in 2013 as Dodd-Frank rules continue to be written but big bank stocks could continue to perform well even after a strong 2012, BankUnited CEO John Kanas told CNBC's "Squawk Box" on Thursday.

"There are something like 240 (Dodd-Frank) regulations that are not yet on the books," Kanas said. "We know that the impact will be another layer of regulation; we're just not sure what it's going to be."

Kanas said the unresolved issues include: The Consumer Financial Protection Board has yet to come out with the definitions of "qualifying mortgage," which measures the ability for mortgagees to pay. "That has the potential to become a serious impediment in the mortgage industry," he said.

The Volcker Rule, which bans proprietary trading, is also having serious implications even before the final rules have been written. Kanas said what started out to be a simple issue is now one of the more complex issues in banking since it affects not only big banks but institutions all the way down to small community banks. "And it's got people running around with their hair on fire trying to figure out how to implement it," he said.

The banking industry is also waiting for clarity on Basel III capital requirements, which will determine how much capital banks will need to hold.

But even with the regulatory uncertainty, Kanas said it should be a good year for large bank stocks like Citigroup because they continue to trade at a fraction of where they once did. The group will also get help from a healthier economy and a rebounding housing sector.

"There's also a ton of excess capital in the banking sector, and a lot of that is getting returned in the form of stock buybacks and dividends," he added. The potential for Bank of America to return more capital to shareholders is one reason bank analyst Meredith Whitney turned more positive on the industry earlier this month.

The industry is also shrinking, with Citigroup and Bank of America announcing big layoffs and smaller banks quietly closing branches, Kanas said.

The bank executive also expects consolidation to pick up once buyers get used to the prices these financial institutions are actually worth.

"Remember that bank stock investors were used to seeing their institutions get bought and sold at significant multiples of book value," he said. "The returns that are coming out of banks today don't justify that kind of price. So when people start getting comfortable with what these institutions are worth when they can only earn 8 percent or 9 percent on capital and 1 percent on assets" there will be more deals.

BankUnited will buy underperforming small banks and midsize banks when it can buy them at the right price, Kanas added.

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