In the face of "constant hostility"—including lawsuits and a general lack of interest in promoting the industry—banks ought to leave New York and head for friendlier terrain, analyst Dick Bove said.
In a note released a day after New York Attorney General Eric Schneidermanannounced a lawsuit against JPMorgan Chase, Bove said it's time for banks to head to states where they won't face such an unwelcoming environment.
"Management should consider the benefits of moving their headquarters elsewhere," the vice president for equity research at Rochdale Securities said. "Shareholders should not be forced to pay for continuous lawsuits because these banks are in New York.
"If the industry was located in Charlotte, North Carolina it would not be facing constant hostility, it would be supported by a government that wants its business."
In the JPMorgan lawsuit, Schneiderman alleged that Bear Stearns made "fraudulent mispresentations and omissions" when selling mortgage-backed securities prior to the investment bank's 2008 collapse. JPMorgan is being held responsible since it took over Bear Stearns as the financial crisis ignited, even though the alleged misrepresentations happened at Bear.
The banking industry has come under fire for excessive risk-taking without the capital to back it up that led to the financial crisis. Banks placed huge losing bets on the housing market— in particular, loans to unqualified borrowers — and had to be bailed out by the government.
At the time, the New York Federal Reserve and its then-President Timothy Geithner, who is now the U.S. Treasury secretary, played a key role in arranging the bank bailout terms.
Bove does not address the merits of New York's case against JPMorgan, the largest bank by desposits in the U.S.
But he said the general tenor towards banks in the state make it no longer feasible to operate there.
"I am constantly struck by the fact that Michigan does not sue the auto industry; Texas is not suing the oil industry; California is not suing the entertainment industry; and Florida is not suing the tourism industry," Bove wrote. "They do not sue farmers in Iowa. New York never stops suing the financial industry. Why? What do these other states understand that New York does not?"
In addition to the JPMorgan prosecution, Bove cites former attorney general Eliot Spitzer — whom Bove said "was consorting with the ladies of the night" while carrying the nickname the "sheriff of Wall Street" — as well as Andrew Cuomo, whom Bove called a person "who began the subprime lending crisis when he was secretary of Housing and Urban Development."
Spitzer was known for several high-profile Wall Street prosecutions as well as a call-girl scandal, while Cuomo sued the subprime lenders that some say helped cause the collapse of the mortgage market.
As a result of official pressure, Bove said banks have laid off workers and consolidated operations.
"The financial industry that is left remains committed to New York because it has sunk cost there and because of proximity among firms," he said. "However, if financial companies are going to continually be sued for billions and even tens of billions of dollars, the legal costs of remaining in New York exceeds the sunk cost in buildings and equipment."
Bove called the existence of the financial services industry in New York "an anachronism" that won't last.
"Major industries do not look first at locating in New York before going elsewhere in the United States," he said. "They probably do not even consider New York."
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