Dick Bove: US Banks Have Been ‘Nationalized’

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A transportation bill in Congress has put the U.S. well on the road to socialism, Dick Bove said Monday.

The bipartisan Senate bill, announced in July, would cut the dividend paid by the Federal Reserve to banks each year from 6 percent to 1.5 percent, and the difference would go toward funding highway projects

“The government has taken the position that, because they offer FDIC insurance, they have the right to invade banks,” Rafferty Capital Markets’ vice president of equity research told CNBC’s “Squawk Box.”

“Unfortunately, I believe the banks have been nationalized; I believe we’re well on the road to socialism in terms of the way we’re taking money flows out of the banking system and putting it into highways,” he said.

Lawmakers said the bill could provide three years of funding for the nation’s crumbling highways, bridges and rail systems.

“They are not only setting very tough regulations concerning how the banks function, but with the highway safety bill, what they’re doing is saying ‘we’re going to take some of the revenues from the banks and use it to repair highways,’” Bove said.


US banks build defenses against downturn

Wall Street’s biggest banks are beginning to build their defences against downturns, signalling an end to the steady thinning of reserves that has helped boost profits in the past five years.

Tapping into reserves set aside for bad loans has become a reliable source of income for the banks in the post-crisis environment, allowing them to offset the effects of weak demand and ultra-low interest rates. Regulators let lenders dip into reserves in this way if they can argue that an improving outlook makes losses less likely.

But the practice is expected to have a limited impact on the banks’ third-quarter profits, which begin to be presented this week, because reserves have been run down about as far as they can go.

While some banks with plump cushions of reserves could still make net reductions, others are at an “inflection point,” said Jennifer Thompson, an analyst at Portales Partners in New York. Lenders with big exposures to energy could see “dramatic” increases in reserves, she said, while related sectors such as materials, commodities and industrials also look vulnerable to rises.

“We’ve reached a point in the cycle where credit quality can’t get much better,” said Bain Rumohr, director at Fitch Ratings in Chicago.



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