NEW YORK (
is "one of the few truly global consumer banks," allowing it to grow deposits and loan faster than many peers, according to a bullish report from
Under newly hired analyst Bill Tanona, the Swiss bank has initiated coverage on U.S. "Brokers and Universal Banks", a sector that includes Citigroup,
Bank of America
In addition to his "buy" on Citigroup and $5.60 price target, Tanona recommends JPMorgan and Goldman Sachs, while he has a "neutral" rating on Bank of America and Morgan Stanley. Tanona has a "favorable outlook" on the sector overall, according to his report.
"As the global economy continues to improve, we believe shares of the companies in our coverage universe will benefit from a combination of healthy book value growth and an expansion in their price to book multiples over time as returns improve," Tanona writes.
The analyst warns, however, that investors will have to be patient to see big gains, since the industry is undergoing fundamental changes in the wake of the crisis and ensuing regulatory and legal fallout.
"It will take some time for firms to adjust their business models and once again generate acceptable returns. We expect these stocks will remain volatile as the news flow will be mixed," the report states.
Aside from praising Citigroup's global growth potential, Tanona cites the bank's progress in shrinking its book of troubled assets in its "bad bank," known as Citi Holdings, through sales, write-downs and restructurings.
"As the firm continues to reduce assets in Citi Holdings, earnings will improve and results will be more consistent. This trend will enable investors to more confidently predict the firm's earnings and give them more comfort in paying a higher valuation for the stock," the report contends.
Tanona is also bullish on Goldman Sachs, arguing its general dominance "in virtually all capital markets businesses" will allow it to continue to outperform peers.
"The firm's strong risk management culture helped it successfully navigate through the global financial crisis (with obvious help from the US government and taxpayers) better than virtually all of its peers. While the firm has faced its share of criticisms following the crisis, it still has had one of the best financialperformances of its investment banking peer group," writes Tanona, who used to work at Goldman himself.
Despite his bullish view on Goldman, Tanona sees potential for a shakeup of top management, perhaps imminently.
Goldman Sachs's management team is very strong; however, missteps on the public relations front have further tarnished the firm's reputation. Management's issues appear to be far from over, as Senator
(D.,Mich.) recently referred some serious matters to the
U.S. Justice Department and
Securities and Exchange Commission for review. We believe management changes may occur in the near term. Any turnover will concern investors despite the firm's deep bench," the report states.
Explain his third "buy," on JPMorgan, Tanona writes that the bank is in an "enviable position," going on to argue "its balance sheet and capital position are strong, the economy and credit costs are improving, and the firm has gained share while not yet seeing the benefits of its recent investments. We see higher earnings and returns in the coming years, with shareholders reaping the benefits via a combination of increased dividends, share repurchases and a higher stock multiple."
Written by Dan Freed in New York
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.