The upcoming earnings season will not be a good quarter for the financial sector, said Dick Bove, financial strategist at Rochdale Securities.
“This is going to be one of the more interesting quarters, because over the last 12 to 13 months, bank stocks have roughly tripled because of an expectation that loan-loss provisions are going to come down and earnings are going to be quite good," Bove told CNBC.
"And while that may be true, it’s not going to happen in the first quarter."
"You’re going to see weak loan volume, stress margins, continued problems with the loan-loss provision and even problems with non-interest incomes.”
First-quarter earnings season kicks off next Monday and financials are one of the most anticipated sectors to watch, with Bank of America and JPMorgan among the main banks reporting in the first week.
“If you look within the banking industry, it is the worst banks that are doing the best,” noted Bove. "But it’s the companies that have had the worst loan-loss provisions and have shown no improvement in earnings that will continue to lose money.”
This includes banks such as SunTrust and Fifth Third , he said.
Meanwhile, Bove expects interest rates to go up before the year-end.
“Inflation is already back,” he added. “If you were to take out housing in the CPI number, it’s up 4.5 percent—so inflation is back and interest rates are going to go up meaningfully. And that’s going to be very beneficial to the banks, because inflation will help raise real estate prices and higher interest rates will improve their lending curve."
More Market Views:
- More from Bove: 3 Bank 'Buys' Ahead of Earnings
- Foreclosures Rising—and We're Only at the Beginning
- Why Markets May Face 'Fairly Major Downdraft'
CNBC Data Pages:
- Dow Jones Financial Services Index
- KBW Bank Index
- Dow 30 Stocks—In Real Time
No immediate information was available for Bove or his firm.