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Dick Bove stepping out of the spotlight, into the buy side

Dick Bove is done arguing.

The long-time bank equity research analyst has joined the buy side as chief strategist of Hilton Capital Management LLC, a division of Rafferty Capital Markets LLC. The move means the outspoken analyst will appear less frequently on the business television news channels and in the media.

"There's no reason anymore to go out and say all the stuff that I said," Bove said in an interview. "The idea is to raise money and buy what you like, not to argue with people. It's been nothing but argumentation for years now."

The arguments have picked up because Bove, an analyst who covers large banks, disagrees with how Wall Street values financial institutions. One point of contention is over banks buying back their stock.

"The purpose of capital is to grow the business," Bove said.

A bank's ability to sell various products is a bigger factor in its earnings than interest rates and not enough attention is paid to the underlying operations, according to Bove. When evaluating banks, Wall Street focuses too much on regulatory issues and measures such as total loss-absorbing capacity and risk-weighted assets, he said.

Bove outlined his investment theory in an 86-page report, and he plans to test it by investing in banks. In addition to moving to the buy side, he also will no longer focus solely on the largest U.S. banks.

"The banks I'm looking for, and I believe are attractive to invest in, are the ones that have dynamic business plans that are making large numbers of acquisitions," he said.

Moving to the buy side means less limelight, and Bove admitted that he will miss the media appearances. "It's a lot of fun being out there, but I can honestly say it doesn't result in an increase in income," he said.

Bove does not get paid for going on television, and he said he could not think of situations where media appearances increased business for his firm.

Bove worked for a number of companies during his sell-side career, which lasted more than 50 years. Most recently he was with the Vertical Trading Group LLC, and before that he was with Rafferty.

Rafferty was one of a number of companies to shut down equity research in recent years, and the headwinds facing the industry were also part of the reason for Bove's move. "There's more money to be made on the buy side than the sell side," he said.

A number of factors have negatively impacted research companies' ability to pay analysts. For years, trading commissions have been squeezed, and active money managers, key clients of research analysts, have been losing share to passive managers as investment dollars increasingly flow into products like exchange-traded funds.

More recently, European regulations are forcing asset managers to unbundle research payments from trade commissions. This is leading the buy side to reduce its number of research relationships rather than make separate payments to a number of different providers or pass the costs on to clients.

"The long-term prospects for analysts in the industry don't look attractive," said Michael Mayhew, principal of Integrity Research Associates LLC, which analyzes the global investment research industry.

Bove is just one of a number of high-profile analysts to leave the profession, Mayhew said in an interview. Another recent example is Mike Weinstein, a top-ranked medical technology analyst for J.P. Morgan Securities LLC who joined Medtronic PLC as a senior vice president of strategy.

"The overall research business is becoming less and less attractive to experienced analysts," Mayhew said.

Bove said it is sad the research industry is facing such challenges, but he is excited about the opportunity to put his investment theories to test.

"At some point in time, it's put up or shut up."