Financials analyst Dick Bove is telling investors to sell their bank stocks.
Bove, chief strategist for Rafferty Holdings' Hilton Capital Management, believes rising interest rates will ultimately crush bank profits — a scenario Wall Street needs to take more seriously.
"They don't have a clue. The market doesn't have a clue based upon the things that I hear," Bove said Monday on CNBC's "Trading Nation." "The bank stocks are going to go lower, and if you own some, you better lighten up."
According to Bove, the Federal Reserve's current rate hike policy will become detrimental to financials — particularly traditional banks.
"What we're seeing is the normal thing happen which is as interest rates go up, the value of these financial assets are coming down," he said. "Investors don't have a clear picture as to what the value of bank assets are. Bank capital in real terms is eroding."
The Financial Select Sector SPDR ETF, which tracks financials, is down about 1 percent over the last two months. Meanwhile, the 10-Year Treasury Note yield is soaring 37 percent over the past year. In just the last week, the yield is up 5 percent to 3.23 percent.
'The analysis is dead wrong'
Due to the complacency surrounding the effect of rising rates on Wall Street among investors, Bove says it's important to get more vocal about his bear case.
"The analysis is dead wrong. It's dead wrong because people are not looking at the statistics. They're not looking at the history, and we've seen exactly the same thing happen in this cycle that we have in all cycles," he added. "Just because interest rates go up, does not mean that banks can get higher prices and won't pay more money for higher costs for the money that they pull in."
His latest thoughts came days before third quarter earnings season begins. It kicks off Friday with results from JPMorgan Chase, Wells Fargo, PNC Financial and Citigroup, a name he believes is particularly vulnerable to the current environment.
"Certain companies have more what they call liability sensitivity than others," Bove said. "Citigroup being a prime example. Sixty percent of Citigroup's deposits come from overseas. Citigroup's deposits, therefore, are highly responsive to the cost of money going up as opposed to the yield on the assets going up."
For investors who want to retain some exposure to financials, Bove recommends looking at banks with Silicon Valley focused businesses. He sees Comerica, Silicon Valley Bank and PacWest Bancorp as firms well-positioned to capitalize on the strength of big technology in the West.
