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5 Forces That Could Fire Up Bank Stocks in 2012

NEW YORK ( TheStreet) -- Bank stocks got off to a roaring start on the first trading session of the year. Will the rally continue for the rest of the year?

Bank analysts certainly seem bullish. But then they have been for the last two years, even though stocks have turned in a dismal performance.

The argument that bank stocks are "cheap" has not won over investors. Still, analysts argue that all the sector has been missing is a catalyst and in 2012 there appears to be several.

Here are some of the most commonly cited factors that will move bank stocks this year.

5. Progress on the European Debt Crisis: This is easily the biggest overhang on the valuations of the big banks, which not only have a direct exposure to European banks but also have material capital market operations that have been affected by severe volatility in the markets.

Should a credible plan emerge out of Europe- hope springs eternal- the upside to the universal and investment banks- Bank of America (BAC - Get Report), JPMorgan Chase (JPM), Citigroup (C), Goldman Sachs (GS) and Morgan Stanley (MS) could be substantial, according to analysts. These stocks have been beaten down with every negative headline out of the troubled Euro zone.

The looming threat of the collapse of the euro is still out there, however, and bank stocks remain highly correlated to news out of Europe. According to KBW analyst Frederick Cannon, investors will need to see more evidence that the U.S. economy can be successfully de-linked from Europe.

In other words, if the U.S. economy continues to show some sign of improvement even as Europe slips into recession, investors will once again focus on the fundamentals rather than the macro risks and bank stocks could get a lift.

4. 2012 CCAR: The Federal Reserve will be conducting its annual 2012 Comprehensive Capital Analysis and Review (CCAR) in first quarter of 2011 for banks with over $50 billion in assets.

Banks will have to show that they can continue to maintain a Basel 1 Tier 1 Capital of 5% even in the event of a severe recession in the U.S. and a global market shock that could result from a Euro meltdown.
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