Banks can absorb oil-loans losses: Bove

Big banks, small banks & oil risks
Big banks, small banks & oil risks

If the worst happened, the five biggest U.S. banks would each need at least $9 billion tucked away, according to a recent Moody's Analytics report. The firm's worst-economic-scenario study comes as investors are concerned that volatility in the oil market could compromise banks that have loans in the energy sector.

But, Dick Bove, equity research analyst at Rafferty Capital, told CNBC that in the case of depressed oil prices, $9 billion is only a tiny fraction of these bank's assets. He believes that banks can absorb the cost of energy losses without a notable disturbance to earnings and capital.

"They have a trillion dollars in assets — a trillion dollars in assets — versus $9 billion, "he told "Power Lunch." "I thought the Moody's study was excellent … they showed fairly clearly that neither the earnings nor the capital of these banks are going to be impacted by the problems in the oil industry."

Despite recently telling CNBC that banks are in their healthiest state, Bove reiterated on Friday that loan-losses, well below normal right now, will likely rise, and banks will soon need to increase their loan-loss provisions.

"Every quarter for the next couple of years, you'll see the loan loss provisions go up at banks," he said. "In the third-quarter of 2013, as a percentage, loan losses were the lowest ever in the history of the numbers."

While banks can absorb damage from the energy sector, Bove forecasts that loans will present the financial sector with problems in a "whole series of areas," namely subprime auto lending and commercial real estate. Still, he said that loan losses won't drive earnings, but a higher than normal loan volume will.

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