Bank Layoffs Far From Over: 150,000 Likely in 2012: Bove

Banks are likely to see another 150,000 layoffs in 2012 — on top of the 230,000 estimated for this year — as government regulations and a weak economy continue to shrink the US financial system, banking analyst Dick Bove said.

Columns and steps
Columns and steps

Increasing regulatory constraints, rock-bottom interest rates and declining share prices have forced Wall Street institutions to pare back sharply on staff, pushing out as many as 230,000 finance professionals this year alone.

While targeting banks has become a popular sport for politicians and protesters, Bove said Americans ought to be careful how loudly they cheer the industry's troubles.

"What no one has figured out as yet is that the big government cannon is harming more than the big banks, evil though they may be," Bove, vice president of equity research at Rochdale Securities, said in a note to clients. "Small banks are hurt far more than the large ones due to the various restrictions on rate and balance sheet size plus government price fixing."

Those troubles will carom from the industry into the broader economy, he said.

That's a point not understood by the various forces that Bove contends are aligned against the banking industry: President Obama, New York Gov. Andrew Cuomo, Congress, regulators and even the media.

"It has not been understood that people who are fired cannot buy products. They cannot pay taxes. They receive government benefits like unemployment checks instead," Bove said. "New York’s governor cannot tax incomes that do not exist."

Big banks have come under scrutiny in large part because of their role in the subprime mortgage collapse, in which financial institutions backed home loans to unqualified borrowers who then defaulted on their mortgages and caused a global economic panic. The loans were packaged into securities and sold to investors, who lost billions when the mortgage defaults mounted.

The government ultimately had to step in and bail out most of Wall Street's biggest names, with executives all the while continuing to receive hefty bonuses.

Banks have thus become an easy political target in Congress, which passed the Dodd-Frank regulatory bill that Bove has faulted for its harsh restrictions on the industry.

Bank stocks have gotten crushed this year, even as the major averageshave hovered around breakeven or slightly in positive territory.

The KBW Bank Index is down 27 percent on the year and the Standard & Poor's 500financial sector was off 21.5 percent heading into Friday's trading.

That's no accident, said Bove, who cited low interest rates, higher capital requirements, price fixing on debit and credit cards, the elimination of proprietary trading and other investment vehicles and a higher cost structure as impediments for the industry.

"This, however, is just the beginning," he said. "There are hundreds of additional rules that must be written that will further increase the cost of financial services and reduce the industry’s revenues."

"President Obama has apologized more than once to audiences that he has not been able to put more Wall Streeters in jail because he cannot locate laws that they have broken," Bove added. "New York Governor Cuomo is seeking to increase taxes on those people he spent so many years trying to put in jail when he was the state’s attorney general."

Bove said a smaller banking industry will mean a weaker jobs picture and hamper U.S. competitiveness on a global level.

"Every major financial company in the United States will fire people," he said. "The government will have its way and cheer the process along."