It’s about to get even better for the banks, says top analyst Dick Bove

Deregulation in the financial industry, already in the works under President Donald Trump, could propel the banks even higher, Richard Bove of Rafferty Capital Markets said in a recent interview.

Bove's remarks come on the heels of the resignation of top Federal Reserve official Daniel Tarullo, an advocate for regulation within the banking industry. Trump recently began the steps necessary to take down parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a piece of legislation that has more stringently regulated the goings on of the financial industry.

"The elimination of Daniel Tarullo as a force within the Fed and American banking is a very positive step toward real deregulation in core banking. It suggests that the banks will be able to operate more freely in the financial markets in obtaining funds and manufacturing products," Bove wrote in a recent note, referring to the elimination of Tarullo as a "big, big plus."

In further comments in an interview Tuesday with CNBC's "Trading Nation," Bove said Tarullo's resignation and the beginnings of deregulation mark the end of a "regime of making it awfully tough for the banks to get at the raw material and awfully tough for them to sell their products" and the signs of a new regime that will likely usher in an easier environment in which to operate. In "raw material," Bove was referring to capital brought in by banks.

Bank stocks in particular exploded higher after the U.S. presidential election in November, reaching highs not seen since the financial crisis. The popular S&P Bank ETF (KBE) is up nearly 30 percent since Election Day, and rose 26 percent in the month after the election alone. The Financial Select Sector SPDR ETF (XLF) is up nearly 22 percent since the election.

The S&P Regional Banks ETF (KRE) in early Wednesday trading hit a new all-time intraday high on the back of remarks made by Federal Reserve Chair Janet Yellen.

Bove rejects, however, the idea that the prospect of rising interest rates and the yield curve has helped boost the banks' bottom lines.

"There's an awful lot of noise about higher interest rates," in the context of banks' profits, Bove said, and pointed to the period from 1966 to 1982 in which the yield curve was inverted "47 percent of the time, and banks never had a down year."

He reiterated this sentiment in a "Squawk Box" interview three days after Trump's inauguration, in which he said if the president's intended programs "work, you'll get a big increase in lending. If you get a big increase in lending, bank earnings will go up, and bank stocks will do better. Focus on loan volume; forget interest rates, forget deregulation."

So it appears the resignation of the Fed's Tarullo has marked quite a positive step in deregulating the banks, Bove said, and points to this as a reason to be more optimistic about the bank stocks.

As far as one bank stock he likes over others, Bove looks to Bank of America. He says the stock is selling at an attractive valuation, and is well-positioned across the country to make loans in the commercial sector, so even though the stock has had a "terrific run" over the last few years, he would still mark it as a buy.

Bove, who has long been a closely followed banking analyst, said last year that the "dictatorship of the Fed on the regulatory side has basically taken away capitalism," pointing to regulations put in place by Dodd-Frank.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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