NEW YORK ( TheStreet) -- Deutsche Bank (DB - Get Report) analysts released their U.S. large cap bank picks for 2011, adding that some fourth quarter surprises will cause bank stocks to initally outperform the broader market.
"In October, we became more positive on banks low economic expectations, stabilizing loan balances, potential capital deployment opportunities in
Investors should not expect dirt cheap bank stocks this year, the analysts argue, adding many are trading at 14 times 2011 estimates or 12 times 2010 estimates.
The analysts believe a number of factors are pushing up bank stock valuations, including an active M&A environment."The recent acquisition of MI (MI) was done at a 35% premium--which can be viewed as a positive read-through for other regionals and we believe additional deals seem likely. Other potential sellers in a consolidating market are FHN (FHN - Get Report) , RF (RF - Get Report) and TCB (TCB - Get Report). Potential acquirers are likely to be BBT (BBT) , FITB (FITB - Get Report), JPM (JPM - Get Report), PNC (PNC - Get Report) and USB (USB - Get Report)," the analysts wrote in their note. Of course not everything is rosy in 2011. The analysts suggest that regulatory reform will still weigh on the sector, especially uncertainty surrounding the impact on bank revenue and the future of the GSE mortgage industry. There could also be $1.5 trillion to $2 trillion in residential real estate losses next year. But with these factors in mind, here are Deutsche Bank's top three bank stock picks.