Richard Bove Defends Too-Big-to-Fail Banks

Veteran analyst Richard Bove defends a reviled industry
Photograph by Jason Henry for Bloomberg Businessweek

“I can’t convey to you how angry I get,” Richard X. Bove says. “What we’re doing is wrong, and it’s going to hurt everyone in this country.”

One of the most visible bank analysts in the U.S. is sitting in his library at home, describing the anguish he feels when big banks are in the headlines. “My stomach is shot because I get so upset,” he says. “Something will come out in the press, and I’ll read it and start walking around, and about three o’clock in the morning I finally stop, because I get tired enough that I can go to sleep.”

The major banks’ misdeeds aren’t what drive Bove to pace his suburban Tampa cul-de-sac. He does it, he says, because politicians and the public aren’t sufficiently appreciative of all the good that JPMorgan Chase, Goldman Sachs, and other too-big-to-fail financial institutions do for the U.S. Stoked by a misleading press, Bove says, the public wrongly blames the banks for the 2008 credit crisis, and the laws enacted in its wake are harming consumers and the U.S.’s standing in the world economy.

After 41 years as an analyst, Bove has turned these arguments into his first book, a full-throated defense of one of the most reviled industries in America. To be published by Penguin Group’s Portfolio imprint on Dec. 26, Guardians of Prosperity: Why America Needs Big Banks is the holiday gift for the most contrarian person you know. In it, Bove argues the crisis was not unique, and certainly not the fault of reckless financiers. “They are prized Americans,” he writes on the book’s dedication page. What’s more, Bove says, to maintain the U.S.’s dominance in the global financial markets, the country needs not just big banks but bigger banks, the better to compete with unconstrained lenders in China. “Wells Fargo, Goldman Sachs, and JPMorgan Chase are shining stars in our financial galaxy,” he writes.

Bove knows how to craft attention-getting reports as an analyst, but Guardians is not a mere provocation. It’s what he really believes. In backing the banks so fulsomely, though, Bove is staking out a lonely corner of the bookshelf. “It seems to me like he’s fighting an uphill battle,” says Thomas Cooley, the former dean of New York University’s Stern School of Business. “Probably Jamie Dimon will give it to everyone on his Christmas list.”

Bove, who turns 73 in January, has a white beard, portly build, and genial manner; on a mid-December afternoon, he’s wearing a black sweater, black shirt, black pants, and black shoes, and he’s driving a black Ford with the vanity tag RXB. The net effect is half badass, half Santa Claus (Richard Attenborough edition)—as if Kris Kringle had moved to Florida, developed strong opinions on capital ratios, and started making contentious appearances on CNBC.

As an analyst for Rafferty Capital, Bove is known on Wall Street for his longevity—he entered the field in 1972, before some of his rivals at other research houses were born—as well as his prodigious output and pugnacious opinions. His reports can drive bank stocks up or down, and he spent $700,000 defending his right to publish his opinions against a 2008 defamation lawsuit by one unhappy target, BankAtlantic. (The suit was settled out of court.)

In 2012, Bove’s then-employer Rochdale Securities imploded after a rogue trader was caught manipulating Apple stock. Suddenly a free agent, Bove says he was approached by 26 suitors and turned down salaries as high as $1.15 million to work at Rafferty, where he has no duties beyond research and can publish what he pleases. A recent example: a piece in which he calls a $132 million Bank of America penalty unjust because it stems from the actions of a subsidiary, Merrill Lynch, before it was acquired. “If I worked for any other company, they would have trashed it in five seconds,” he says.

There are limits to Bove’s regard for the banks. “There were a lot of really bad bankers, and a lot of bankers belong in jail and should have gone to jail, so I don’t have any problem with that concept at all,” he says. “But by making the simplistic decision that the bankers did everything wrong, we then started to craft solutions based upon an incorrect assumption, and we made, I think, the situation far worse.” Bove writes that antibank bias in the media—particularly at Bloomberg News—fanned the flames.

Jason Henry for Bloomberg Businessweek

In Guardians, popular financial reforms are subjected to chapters of abuse. By tightening rules on overdraft fees and other charges that used to make banks billions, Dodd-Frank has forced the banks—which are obligated to make profits for shareholders—to come up with fees that are borne by all customers, Bove writes. The law’s Volcker Rule, adopted Dec. 10 and meant to curtail risky trading like the kind that led to JPMorgan’s London Whale losses, also has unintended consequences in Bove’s eyes, reducing liquidity in the financial system and leading to higher prices for gasoline and milk.

The most dire problem the book cites is that politicians such as Senators Elizabeth Warren (D-Mass.) and David Vitter (R-La.) want banks to shrink at a time when foreign institutions are ballooning in size. “I believe that we’re going to suffer mightily as the Chinese take all the control of the global financial markets,” Bove says.

Bove is an engaging rhetorician, but his book comes at a time when the break-up-the-banks movement has gained considerable momentum. Warren has become a darling of the Democratic Party for her fiery, populist talk. “Where are we in making sure behemoth institutions on Wall Street can’t bring down the economy again?” she said in a November speech. “And stick the taxpayer with the bill when it goes wrong?”

Not many Wall Street figures have read Guardians in advance of publication. (Kirkus Review, in a capsule review, calls the book a “well-written, lively and provocative argument that may not sway everyone but is certainly worth consideration.”) But bank critics have ready answers to its broad themes. On the ascendancy of foreign banks: “My basic response would be, who cares?” says Dean Baker, the co-founder of the Center for Economic and Policy Research, a Washington think tank. “Why on earth should someone working at a Walmart in Iowa, an auto factory in Michigan, or even a social media startup in Silicon Valley care if the bank they do business with is based in Germany? We obviously don’t have any problem buying all sorts of manufactured goods from foreigners; why would it bother us if the people who run the banks that have our checking accounts or give us mortgages are foreigners?”

Simon Johnson, a professor of economics at the Massachusetts Institute of Technology and a Bloomberg View columnist, notes that Bove’s record in predicting the 2008 crisis—the ultimate standard by which to judge bank analysts—was mixed. His 2005 report This Powder Keg Is Going to Blow was prescient. But then Bove called the bottom of the market too early, advising clients to buy Lehman Brothers less than a month before that stock went to zero.

A book lustily praising bankers may be a difficult sell, Bove acknowledges. “I try to position the book not as a defense of banks, because that’s a loser of a concept, right?” he says. Rather, he wants readers to think about what post-crisis legislation has cost them in increased banking fees. “What I would love to see is that the American public understand what the government has done to them.”

Bove says he’s not expecting a thank you from the likes of JPMorgan Chief Executive Officer Dimon or Goldman’s Lloyd Blankfein for giving the banking industry a Christmastime gift. His relationship with them is strictly neutral. “I doubt that they’re going to say anything positive to me at all,” he says. “I hope they buy the goddamn book. That would be thanks enough.”


    The bottom line: In his book, Bove argues that instead of breaking up banks the U.S. should be encouraging them to get bigger.

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