DB Expects Banking Stocks to Bounce Back
Friday, June 10, 2011 3:00 PM

Analysts at Deutsche Bank believe that although the banking stocks look cheap on an absolute basis, they remain well set to bounce back. They state that the stocks have underperformed by a large 1500 bps since their recent highs in mid-February and by 800 bps year-to-date. The stocks have corrected 5 to 10 percent on a relative P/E basis in recent months.

DB analysts state that new capital rules remain a big question mark for both investors and banks. They state most banks expect capital buffer will be 50 to 300 bps on top of 7 percent. They believe that banks believe that despite a slowdown in economic growth, much has not changed among their customers since April 2011. Banks are confident that credit quality will continue to improve if the economy weakens a bit more from here. Analysts state that loan growth remains sluggish and commercial loans continue to rise and banks are optimistic for some pickup in growth in second-half of FY2011. They state merger and acquisition activities are unlikely to pick up until banks get more regulatory or capital clarity. They state that Citigroup Inc. (NYSE: C) and Wells Fargo & Co. (NYSE: WFC) remain top picks among banking stocks.

On a year-to-date basis, Citigroup has a share performance is -15.75 percent, and as compared to Standard & Poor’s 500, Citigroup’s YTD share performance is -18.51 percent. Wells Fargo has a share performance of -13.33 percent of an YTD basis. As compared to S&P 500. WFC’s YTD share performance is -16.16 percent.

Shares of Citigroup gained 1.06 percent or 40 cents to trade at $38.17, and WFC’s shares added 0.61 percent or 16 cents to trade at $26.38.