NEW YORK (TheStreet) -- Dick Bove, bank analyst at Rafferty Capital Markets, said big U.S. banks are under pressure, but are still worthy of being invested in. Alongside Dan Freed, senior writer at TheStreet, Bove explains in further detail.
Bove was swift when defending why the U.S. needs its big banks. He suggested that in a huge global financial system, comprised of roughly $56 trillion in convertible currencies, having big banks was simply a must-have.
He added that without big banks, large U.S. and multi-national companies would have to seek funding from overseas. The companies would be forced to do so because there is only so much a bank can legally lend, relative to its size.
Furthermore, the U.S. government uses 21 prime lenders. Of those 21, 14 are foreign institutions, while only 7 are U.S. institutions. If our banks continue to shrink, the U.S. dollar may lose its place as the reserve currency of the world, he said.Bove added that if that were to happen, the U.S. government would be forced to pay back its debts, which would wreak havoc. Optimistically, he said that U.S. banks will be the most profitable in their long history in 2013, and are likely to surpass that mark in 2014. Freed questioned how much bigger banks could grow, considering how massive they've become after acquiring many failing banks during the financial crisis. Bove pointed out the sheer size of other institutions around the globe -- like the Industrial and Commercial Bank of China, which will make more money in 2013 than both J.P. Morgan (JPM) and Wells Fargo (WFC) combined -- and suggested that there is still room to grow. That growth, however, is being stymied by U.S. regulators looking to downsize and prevent U.S. banks from getting bigger.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff. -- Written by Bret Kenwell in Petoskey, Mich. Follow @BretKenwell