Bank Stocks to Benefit From More 'Stress': Goldman

Regulators could also adopt a more stringent treatment of deferred tax asset arising from stressed losses, "effectively removing the tax shield for some banks and making stressed losses a one-for-one hit to capital."

"Regulators could also reduce capital deployment through the qualitative aspect of the stress test, something that remains difficult to handicap," the analysts add.

Banks with the largest potential increase from last year include Citigroup, Regions Financial (RF), KeyCorp (KEY), SunTrust (STI), Discover Financial (DFS) and Northern Trust (NTRS).

Morgan Stanley (MS) also screens well, but the analysts expect the investment bank to prioritize completing the acquisition of Morgan Stanley Smith Barney.

In addition, the analysts also include banks with the highest "margin of error"- banks that could afford to see their loan losses increase 50% or operating profit drop 50%, maintain a payout ratio of 50% and still maintain a common capital of 5.5%.

American Express (AXP), Citigroup, KeyCorp, Morgan Stanley and all the trust banks meet this criteria.

--Written by Shanthi Bharatwaj in New York



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