Bank Stocks Set to Surge 25% This Year: Bove

By Jeff Cox, Senior Writer

NEW YORK ( CNBC) --Now that the stress tests are over, US banking stocks are likely to increase at least 25% in the year ahead as investors realize the sector is in solid condition, analyst Dick Bove told CNBC Wednesday.

The biggest factors driving that recognization, Bove said, are the windfall from the European sovereign debt crisis--clients fleeing to US banks--as well as sharp increases in liquidity, capital and deposits.

"If you wrap it all up, in 2011 the banking industry had its third most-profitable year ever in the history of the industry," said the vice president of equity research at Rochdale Securities. "No one has cared about any of that, no one has looked at that.

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What the federal stress test did was force people to start looking at those fundamentals and recognize that this industry for the last year has been doing extraordinarily well, and at some point that's going to drive these stocks a lot higher than they were driven yesterday."

Bove's strongly bullish call comes a day after the Federal Reserve announced that 15 of the nation's 19 largest banks proved they have enough capital to survive a Depression-level economic downturn.

While some of those bank stocks showed an uptick after Tuesday's closing bell, traders remained unconvinced heading into Wednesday's market action.

But Bove said those betting against bank stocks are making a mistake.

He had been a sharp critic of the stress tests. As recently as this past weekend, he issued a detailed note saying the tests "could harm the economy through mandating the direction of the banking system."

But now that they're over, Bove thinks this is a good time to buy.

"Bank stocks will move from discounts to book value to premiums to book value, and that will drive them up certainly 25% by the end of this year and probably a lot higher," he said in the CNBC interview. "In the next two to three years we are in a period in which bank earnings are going to soar and in which bank stocks are going to move sharply higher."

--Written by Jeff Cox at CNBC
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