As part of a larger note offering predictions for 2012, JP Morgan analyst Vivek Juneja writes that banks could be plagued by the same kind of uncertainty and stress in the first half of 2012 as they have been in the second half of 2011. But the second half of next year looks rosier, and financial companies should get a boost once the results of the government’s stress tests are announced.
“[P]ositive results under a very harsh stress test and continued recovery in the U.S. combined with attractive valuations should provide a lift to bank stocks later in the year. Regulatory/political risk will likely remain high because it is an election year.”
Citigroup (C) could struggle in the near-term, but should rise above the noise at some point next year, particularly as emerging markets recover, Juneja argues.
“On a full-year 2012 basis, we recommend Citigroup because it has been overly beaten down due to concerns about weak markets and fallout from the Eurozone including in the emerging markets. However, emerging markets should have a lesser impact and likely quicker recovery from a slowdown. In addition, despite the harsh stress test scenario, we expect Citi to begin returning capital via share repurchases in 2012 due to its strong capital position.”
Juneja also likes US Bancorp (USB) and Wells Fargo (WFC), at least in the near term.
“Given the uncertainty in the environment, we remain defensively positioned near term and recommend names such as US Bancorp and Wells Fargo due to relatively lower risk, good capital including continued capital return, and some drivers for revenue growth (portfolio acquisitions and growth/expansion of relatively newer businesses).”
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