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) - Financial stocks have gotten off to a strong start in 2012, but investors remain wary of the sector, according to a Citigroup report published Friday.

Following Citigroup's 2012 financial services conference this week, analysts at the bank noted attendance was "somewhat thinner than in recent years" and described investor sentiment as "broadly skeptical, cautiously optimistic at best."

That skepticism offers a counterpoint to a strong rally in financial stocks year to date. The

Financial Select Sector SPDR

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, a popular exchange traded fund that tracks financial stocks, is up roughly 14% so far in 2012 compared to a 6% rise in the Dow Jones Industrial Average.

Large cap banks have been among the biggest contributors to theXLF's rise.

Bank of America

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, for example, is up nearly 45% year todate.

JPMorgan Chase

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is up nearly 22% and

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is up more than 29%.

Still, Citigroup's analysts argued sentiment about the banking sector was "skeptical to neutral," with exchanges "mixed," asset managers "cautiously optimistic," and cards and specialty finance companies "positive.

Among the concerns highlighted for banks is the continued low interest rate environment. Bank of America CEO Brian Moynihan told investors at the conference he felt net interest income "had already mostly bottomed out and would be relatively stable," and that the bank "would focus on costs," according to the Citigroup report.

Bank of America chief Moynihan also stated that the $35 billion to $40 billion pre-tax earnings target unveiled by the bank in 2010 is still achievable, according to the report.

JPMorgan, Citigroup's only "buy" rated bank stock, did not present at the conference. Citigroup also has a "buy" on

Capital One Financial

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which it considers a credit card stock.


Written by Dan Freed in New York


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