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Bank Stocks: Jobs Report Winners

NEW YORK ( TheStreet) -- Fifth Third Bancorp (FITB - Get Report) was the winner among the largest U.S. banking names on Friday, with shares rising over 2.12% to close out the week at $13.76.

The U.S. Labor Department reported that the U.S. economy added 227,000 nonfarm jobs during February, declining from an upwardly revised increase of 284,000 in January, while the unemployment rate remained at 8.3%. This was the first time since early last year that payrolls have grown more than 200,000 three months in a row. In its daily economic commentary Deutsche Bank pointed out that the payroll numbers "have been revised higher in 19 of the past 20 months, which is consistent with what has transpired in the early stages of most economic cycles."

The The KBW Bank Index (I:BKX) pulled back from earlier gains and was up 1% to close at 45.72, with all 24 index components rising for the day, except for Bank of America (BAC - Get Report), which was down a penny, to close at $8.05.

The Wall Street Journal on Friday reported that Bank of America was negotiating with regulators to avoid $850 million in penalties -- part of the $25 billion mortgage foreclosure settlement between federal regulators, states' attorneys general, and the largest loan servicers, announced on Feb. 9 -- by offering loan modifications, including principal reductions, to 200,000 borrowers.

A Bank of America spokesman told the Journal that the average balance reduction would be more than $100,000. While the full details of the plan have not been released, it's quite possible that investors holding mortgage paper backed by the mortgages Bank of America wishes to modify, may have other ideas.

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Bank of America's shares have returned 45% year-to-date, following last year's 58% plunge. The shares trade for 0.7 times tangible book value, according to Highline Financial, and 11 times the consensus 2012 earnings estimate of 71 cents a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $1.19.

Are bank stocks too hot?

The KBW Bank Index has now risen 16% year-to-date, following last year's 25% decline.

Sterne Agee analyst Todd Hagerman on Friday expressed caution over the sector's strong year-to-date performance, heading into next week, when the Federal Reserve will publicly announce the results of its annual stress tests on the largest U.S. bank holding companies, saying that "while bank stocks have regained their footing with an improved investor outlook and the recent steady flow of positive economic data," the likelihood for more subdued GDP forecasts relative to 2H11 are each likely to weigh on valuations and further potential upside in the shares."
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