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3 Goldman Euro Bank Upgrades

2. Unicredit (CRDI.MI)

Goldman's analysts added Unicredit to their conviction buy list Feb. 1. The Italian bank "is one of the few large European banks that still trades at a discount to tangible book value ," They argue the discount indicates concerns about weak profits and a murky picture regarding governance and management strategy. Also hurting the stock's valuation are concerns about further weakness in funding costs for Italian government debt, according to the report.

"While sovereign and funding remain potential areas of uncertainty, we expect visibility on management strategy and group profitability to improve in the coming quarters," the report states.

Among the risks the analysts highlight are either a sudden worsening of the macroeconomic picture or in European sovereign credit costs. They also have concerns about management's ability to execute on its plans to manage costs, as well as potential exposure to the Madoff fraud. As JPMorgan Chase proved last week , such exposures cannot be overlooked.

Among several positive signs Goldman's analysts expect from Unicredit in 2011, the expect "a gradual improvement and recovery in the group's depressed bottom line over the coming quarters primarily thanks to a moderate expansion in pre provision profit (+6% in 2011) and lower loan losses (-22% yoy in 2011) as the bank benefits from positive trends in Germany and core CEE countries and a stabilizing asset quality trend in Italy," the report states.

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