NEW YORK ( TheStreet) -- Banking sector investors, analysts and managements are taking their eye off the ball by focusing on "accounting tricks" and capital returns to shareholders instead of sales growth and margin expansion, according to outspoken bank stock analyst Dick Bove of Rafferty Capital Markets. Bove shared his thoughts in an interview late Tuesday after listening to a handful of company presentations at a financial services industry conference hosted by Citigroup ( C). With the exception of Wells Fargo ( WFC), which he upgraded to "buy" from "hold" on Tuesday, "nobody was really talking about expanding the businesses," Bove said. "It was all about how much capital can you return. What the hell is that all about? Doesn't anybody think that the banking business has any future whatsoever--that all they want to do is get a high dividend and stock buybacks? It's kind of discouraging when you hear that," Bove said. Investors and analysts are heavily focused on buybacks and dividends ahead of Thursday's release of 2013 stress tests on the largest 19 U.S. bank holding companies. On March 14, the regulator will release the results of the 2013 Comprehensive Analysis and Review (CCAR), which applies the stress tests to the large banks' 2013 capital plans. Banks that receive regulatory permission to do so are expected to announce a flurry of dividend hikes and buyback authorizations on or shortly after that date. But capital returns to shareholders have little to do "with running a business and trying to make inroads," Bove argues. "I know people want Apple ( AAPL) to pay back its cash now, but aren't people supposed to be interested in what you're selling, how many you're gonna sell of it, and what the margins are? That's what was so different about Wells Fargo versus multiple other presentations, because that's what Wells Fargo talked about: these are the products we're selling, these are the markets we're penetrating, these are the margins we expect to get on these products because we're cutting our expenses." Bove sees Wells Fargo "stealing market share from everyone." He cites Bank of America ( BAC) in particular as a victim of Wells Fargo's growth. He says Wells Fargo's market lead in small business lending and number two position in deposits both came at the expense of the Charlotte-based rival.
By contrast, Bove says JPMorgan Chase ( JPM) and Citigroup ( C) management appeared to show little interest in discussing how they were improving their businesses, when they spoke on Tuesday. "They're interested in ROTCE and they're interested in the difference between ROTCE and ROA and ROE and what are you going to do about deferred tax assets--DTAs. This is not running a business. This is playing accounting games. Stocks don't go up because people can play accounting games. They go up because the company sells more widgets at higher prices, and there was none of that in the JPMorgan thing. There was virtually none of that in the Citigroup thing. Nobody seems to see this industry as one which has potential to grow because it has attractive products that are going to be sold at increasing rates over long periods of time, which by the way it is. Money is not going to go out of style." Despite his unhappiness with JPMorgan and Citigroup's presentations Tuesday, Bove continues to recommend both stocks. He argues Citigroup is cheap in terms of valuation, even though he is "not impressed by the business plan at this moment." He also sees JPMorgan growing due to competitive advantages, though he believes management needs to do a better job of shifting questions "from accounting discussions to more important aspects of the business." Another company that impressed Bove on Tuesday was SunTrust ( STI). "The big argument against owning bank stocks is that assets and capital are overstated, but what SunTrust showed is everything is
actually understated. Every time SunTrust sells a distressed asset it sells it at a profit," he said. -- Written by Dan Freed in New York. Follow @dan_freed