SOURCE: Five Star Equities
NEW YORK, NY--(Marketwire - Nov 21, 2012) - Despite the global economy experiencing a major slowdown financial stocks have shown investors some pretty admirable gains. The Financial Select Sector SPDR ETF (XLF) has gained 17.5 percent year-to-date, nearly 6 times the Dow Jones Industrial Average gain of 3 percent over the same period. Five Star Equities examines the outlook for companies in the Banking Industry and provides equity research on Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C).
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Last week the Federal Reserve announced guidelines for the latest round of "stress tests," which they expect to release results for by late by 2013. The latest tests will focus on how the nation's 19 largest banks would handle major recessions in Europe, China and Japan. The passing of the "stress tests" are considered key as it enables large banks to increase dividends and share buybacks.
"For the majority of banks, we view the scenarios laid out for [the capital analysis and review for] 2013 as modestly more optimistic as the one used in 2012," Barclays analyst Jason Goldberg said. There will be a number of banks that "will return the majority of their 2013 net income to shareholders in dividends and buyback next year," he said.
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Shares of Bank of America surged over 4 percent Monday after they were upgraded to "buy" from analysts at Stifel Nicolaus, and had their price target lifted to $11. "We like the combination of the company's potential EPS growth trajectory, its improved capital position and likely dividend increase, leverage to what is working in the current environment (mortgage origination and debt underwriting) and our belief that it is under-owned. These traits make BAC shares a relatively attractive place to be in a sector struggling for catalysts," the analysts said in a client note.
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citigroup has recently agreed to pay a $360 million settlement to the brokerage estate of Lehman Brothers to resolve a dispute over a $1 billion deposit made by Lehman's the week it filed for bankruptcy.
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