Banks limited by slow loan growth: Dick Bove

Vertical Group bank analyst Dick Bove on Friday explained why investing in banks wouldn’t be a smart move in this volatile market.

“If you want to make money in banks or in financial companies, it’s because they are selling more of something and the something that they sell are loans. And if they don’t sell more loans, they are not going to show an increase in earnings and their stocks aren’t going to do well. And so far they are not selling a heck of a lot more loans,” he told FOX Business’ Liz Claman on “Countdown to the Closing Bell.”

Typically, financial institutions or banks thrive as interest rates rise, but recently this has not been the case. Financial institutions are collectively down more than 5% this week. The Federal Reserve is expected to raise interest rates three times this year, depending on the rate of inflation and the state of the economy.

Though Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) shares have fallen throughout the week, they ended on a high note at the end of Friday’s session.

Bove said that inventory is to blame for the financial institutions’ sharp declines during the week.

“If you are looking at the Morgan Stanleys of the world, Goldman Sachs, the JPMorgans, they have an inventory cost and as interest rates go up, the value of that inventory goes down. The fact is that the cost of the inventory that they have is going down, so that they are not seeing a big increase in earnings as a result of the increase of volatility in the market,” he said.