Updated with information about the Federal Reserve's rules proposal for enhancing oversight of the nation's largest financial institutions.
NEW YORK (
has identified the
10 actively traded New York bank stocks with the most upside potential for 2012
Using data provided by SNL Financial, we isolated the bank and thrift holding companies headquartered in the Empire State, with three-month average daily trading volume of at least 50,000 shares, then pared down the list to the 10 names with the most upside potential in 2012, based on mean price targets among analysts polled by FactSet.
There are many familiar names on the list, with the largest banks seeing the greatest discounts to tangible book value and forward earnings estimate because of regulatory threats to revenue, including the reduced interchange fee income brought about by the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the
final regulations based on the Volker Rule's requirement to curtail banks' proprietary trading.
Other threats to the large banks include European exposure, and even though the banks have detailed relatively modest exposure on their balance sheets, what investors have no way of knowing -- and what Dodd-Frank didn't address -- is how much off-balance-sheet risk the banks might have from the tangled web of credit default swaps and other derivative investments.
The Fed's release on Tuesday of a new 173-page proposal, with
new rules to strengthen oversight of large banks
didn't settle the largest banks' ultimate capital requirements, although the regulator did say it would incorporate the Basel III requirements for enhanced capital buffers for systemically important banks.
The regulatory capital issue may continue to drag on the shares of banks with over $50 billion in total assets, until the Fed begins phasing in its new capital rules in 2014.
Still, for the largest New York banks, analysts generally give a thumbs-up, because of the great amount of additional capital the group has built-up over the past few years and the expectation that following the third round of
in January, many of the large industry players will be allowed to significantly increase their return of capital to investors through dividends and share buybacks.
Of course, investors may be wondering if 2012 is the year when the analysts finally get the big banks right. After all, the valuations have been heavily discounted for years now, and many of the analysts have been saying "buy" all along.
The smaller names on the list trade at higher multiples than the biggest banks, which isn't surprising, with lower (or no) European exposure, less impact on capital requirements from Basel III, less of an impact from Durbin, and a smaller political target-on-the-back.
Here's the list of 10 liquid New York bank stocks with the most upside for 2012, ordered by ascending upside potential: