Thursday, December 15, 2011

Largest banks to make progress, regional banks to outperform market next year, KBW says

The largest banks will continue making progress next year, but the industry's many problems are taking longer than expected to resolve, analysts at investment firm Keefe, Bruyette & Woods said in a series of research notes Thursday.

Meanwhile, regional banks are poised to outperform the market next year.

The analyses were part of KBW's year-ahead outlook. A report was published for universal banks (the largest, including Bank of America and Citigroup), large-cap banks (including BB&T and Fifth Third) and regional banks.

Universal banks: The analysts recommended investors market weight the stocks despite underperforming this year -- though they're the most cautious about Bank of America. The European financial crisis, mortgage issues, the Volcker Rule implementation and weak capital markets activity will still buffet them.

Large-cap banks: This class gets mixed opinions. The analysts said to buy shares of the banks that will be able to redeploy capital the best. They gave Winston-Salem's BB&T high marks.

Regional banks: This group has significant advantages over its larger peers, the analysts said, including not having to participate in the federal government's stress tests and no European exposure. They expect profitable M&A activity to pick up in the second half of the year.