Bove cuts JPMorgan, citing regulatory 'McCarthyism'

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Richard Bove of Rafferty Capital Markets.

Closely watched financial analyst Dick Bove cut his rating on JPMorgan Chase on Monday, citing an atmosphere of regulatory "McCarthyism" surrounding the company.

Over the weekend, various media outlets reported that the bank was pulling back from its international banking commitments until its legal issues were resolved, just as Bove has been suggesting would happen, he said in a research note.

The reports followed word that U.S. government had launched a probe into the company's hiring practices in China. It was alleged the bank has been hiring the children of prominent Chinese officials in an effort to curry favor, according to reports filed by The New York Times' DealBook blog.

Bove, a vice president at Rafferty Capital Markets, said he expects the aggressive government actions against JPMorgan to cause customers to flee the bank for overseas rivals.

(Read more: Is the government trying to break up JPMorgan?)

"The attack against JPMorgan brings to the forefront another key issue that I have been arguing—i.e., banking regulators are pushing U.S. business away from this country to foreigners," he wrote in a research note.

Bove charged that regulators are actively harming the ability of U.S. banks to compete. "They are attacking the jobs of banking workers and the wealth of the American people," he wrote, calling regulation "totally out of control."

The analyst said he sees three clear risks to the company's earnings as a result of what he called "the government vendetta."

"The first is investment banking, particularly overseas. The second is payment systems. The third is litigation costs," he wrote. "The first two are likely to decline, while the third is expected to increase."

As a result, Bove cut JPMorgan's rating from to "hold" from buy," and cut its price target on the stock to $57 a share from $60 per share.

(Read more: Bove: US is trying to break up JPMorgan)

The analyst also reduced his earnings estimate to $8.50 a share from $8.86 a share.

Bove now expects JPMorgan to earn $5.95 per share for 2013, down from his previous estimate of $6.27 per share. The 2014 forecast was cut to $6.19 a share from $6.60 a share.

Despite the downgrade, Bove said he still strongly believes in the JPMorgan's management and expects it to prevail in most of the actions against the bank. However, he wrote, "I do not believe that investors will flock to the stock as the company continues to be pummeled weekly," calling the stock "dead money near term."