Large regional banks are filling a void created by the biggest institutions' regulatory burdens and the competitive disadvantage of smaller companies, analyst Dick Bove said.
Firms in the middle tier of banking — think US Bancorp , PNC and Capital One, for instance — are growing their key commercial and industrial lending portfolios while their competitors have had to pull back their activities, according to an analysis from the widely followed Rochdale Securities vice president of equity research.
"The relative growth of the big regionals appears to be due to the fact that the big universals are dealing with multiple other issues that are slowing their ability to compete. In fact, many of these banks have simply pulled back from key lending businesses," Bove said in a note to clients.
"The community banks have simply been weighed down by regulations that are driving them out of the business. The government has gone after this industry with a 'meat ax' and it shows," he added.
Bove has been a consistent advocate of buying bank stocks, particularly the large institutions that he says have unfairly become targets of government overreach.
But his latest analysis asserts that in some ways the regionals have shown growth in areas where the broader industry has not.
Recently released data from the Federal Deposit Insurance Corpshows an industrywide decline in total loan portfolios, though Bove notes that regionals — those with between $25 billion and $400 billion in assets — actually are growing.
"These banks are growing faster than both the universal banks and the smaller community banks," Bove said. "One might almost say that they are running away with the available business."
In terms of mortgage lending, big banks are expanding their portfolios while small institutions have fled the industry
"It just may be that the smaller banks are being lost to the industry as loan originators," Bove said.
For investors, Bove advocates the top five banks, which include the three aforementioned companies plus SunTrust and BB&T.
"The big regional banks deserve a closer look," he said. "The top five are particularly appealing."
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