Financial stocks need more than President Donald Trump's promises of banking deregulation and Federal Reserve signals of higher interest rates to continue their postelection rally, influential banking analyst Dick Bove told CNBC on Tuesday.
Dispelling the first of what he calls "urban myths" about banking, Bove countered conventional wisdom — saying the Dodd-Frank Wall Street Reform law, which was put into effect after the 2008 crisis, won't be repealed or modified in favor of the big institutions.
Secondly, Bove argued in a "Squawk Box" interview that banks won't be able to hold on to the earnings boost they get from higher interest rates. The hole in the bottom of the piggy bank, as he described it, would be that higher rates would also hurt the value of financial assets held by the bank, thus leaking out any benefits from increasing borrowing costs.
These scenarios put banks at risk for volatility, said Bove, vice president of equity research at Rafferty Capital.
But Bove does see a saving grace for the sector, in the success of Trump's policies to boost the economy. Stronger economic growth would allow banks to build profits in the longer run by igniting lending activity, which has been strained since the Great Recession.