) - A prominent analyst called the case for buying


(C) - Get Citigroup Inc. Report

shares a "'trust me' story" this week, the first time in awhile anyone has seriously questioned a large bank's ability to meet aggressive growth targets.

Kudos to CLSA's Mike Mayo for breaking away from the pack. The analyst community itself has been a "trust me story" regarding bank stocks for the past few years, but

failed to provide investors much reason to retain confidence.

Shares of the country's six largest banks have declined by an average of 27% since mid-April, when the sell-off first took hold. Since mid-July, when second-quarter reports started trickling in, they're down an average of 12%.

Bank of America

(BAC) - Get Bank of America Corp Report

has taken the most brutal beating, with drops of 37% or 20% over those time periods, while

Morgan Stanley

(MS) - Get Morgan Stanley (MS) Report

has gotten hit the least hard, declining 21% or 4%.

Yet no analyst tracked by


has shifted to a sell rating on the stock of any large bank over the past three months. According to, the most recent "sell" downgrade came in January -- for Morgan Stanley, the stock that has retained the most relative value.

In fact, analysts have become even more bullish - adding 10 more buy ratings collectively to

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report


Wells Fargo

(WFC) - Get Wells Fargo & Company Report


JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report


The key issue with analyzing bank stocks today is that old-school valuation metrics have gone the way of the abacus. The industry's uncertain outlook - due to the economy and regulatory reform - has made profit estimates and price-to-earnings ratios somewhat irrelevant. What good is book value if banking titans will be forced to divest unknown quantities of their books?

In a July 13 report titled "Heck With Normalized P/Es - What About 2011 P/Es?," Stifel Nicolaus' Chris Mutascio acknowledged as much. He cited the impact of financial reform, and when it will occur, as "the primary issue weighing on the bank stocks" recently.

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"While seemingly everyone has their normalized earnings models built (us included) and can guess as to when they will occur, no one really knows the answer to this fundamental question," Mutascio said.

Mutascio is basing his ratings instead on 2011 earnings estimates, which are more guessable than the "normalized," post-reform-impact scenario. According to that metric, Mutascio considered Bank of America to be 72% cheaper than the average bank stock and Wells Fargo to be 67% cheaper, and rated both of them a buy. Since the time of his report, though, the shares of both firms have both declined another 15% to 20%.

Still, as bank stocks tumble further, it only bolsters the simplistic bull case: They're cheap!

On Tuesday, Collins Stewart analyst Todd Hagerman cited several reasons for buying large bank stocks. They're inexpensive, with stronger balance sheets and M&A looks ready to pick up. According to his thesis, even the uncertainty in Washington weighing on the sector represents a buying opportunity.

"Given the magnitude of the pullback in recent weeks and parade of negative economic news, we are finding it increasingly difficult to discount the potential for 'unconventional' Fed actions in the weeks ahead and potential policy shift in Washington as the mid-term election season begins in earnest - potential positives, in our view," said Hagerman.

His analysis finds Bank of America and Citigroup to be trading below 2011 tangible book value, while JPMorgan is trading at parity with that measure. He has a price target of $20 for Bank of America, $6 for Citigroup, $60 for JPMorgan and $35 for Wells Fargo.

Those prices would represent premiums of 51% to 67% to the banks' closing prices on Monday. For its part, Citi hasn't been able to sustain itself above $5 for more than three sessions since the end of 2008.

Maybe the contrarians are right. After all, if the economy recovers more quickly and strongly than recent gloomy forecasts predict, and financial reform doesn't turn out as harsh as the naysayers predict, bank stocks at current valuations could represent a goldmine.

Yet it's hard to put much weight in the consensus view. For the most part, analysts weren't prescient enough to see the U.S. credit bubble inflating before their eyes. They didn't realize that financial reform would represent a huge albatross to stock performance, despite widespread evidence that Washington was about to crack down hard on Wall Street. And for all their general bullishness on the sector, analysts didn't notice the mortgage-finance boom that was about to burst forth from banks' profit statements during the spring of last year.

Perhaps it's because they work within the industry they're tasked with analyzing, or perhaps it's because they work at companies that tend to make more money when stocks are headed toward the upside. But the oft-cited conflicts of interest haven't dictated the view of everyone in the analyst community.

Mayo is one of just three analysts who advises clients to sell Citi shares. He's one of just a few analysts, including Meredith Whitney, who advised clients to sell bank stocks before the crisis fully erupted -- particularly Citigroup's. Perhaps unsurprisingly, he's been blacklisted from one-on-one meetings with Citigroup's top executives for nearly two years.

On conference calls after banks report earnings, Mayo tends to be a thorn in management's side.

For instance, during a call with Wells Fargo executives on July 21, Mayo peppered CEO John Stumpf and CFO Howard Atkins with nudgey questions for several minutes. He wanted to know more about Wells' loan portfolios and whether its yield on earning assets is sustainable. (NAB Research's Nancy Bush was next in the question queue after Mayo, and said to laughter, "Good morning, guys. I promise I will not ask a question about accretable yield.")

Yet Mayo's questions were ones that his clients and other investors are eager to hear more about. He simply wants management to tell it like it is.

On Citi's call, Mayo demanded to know how the company plans to meet aggressive targets of 5% asset growth, and ROA of between 1.25% and 1.50%. Mayo thinks the targets are way too optimistic, given the uncertain environment and rocky economic situation, even if one were to exclude the bad-bank side of Citi.

"This would be like taking one's golf score and projecting future scores after excluding the five worst holes," says Mayo. "Moreover, there is no reason to think that the other 13 holes could cause problems in the future given the current economic environment."

On Monday, Mayo grabbed attention for a report in which he raised serious questions about the credibility of Citigroup management. He also raised questions that management apparently refuses to address with him, concerning a $50 billion deferred tax asset - based on internal earnings projections - that's more than twice the size of competitors'.

Mayo maintained an underperform rating on Citi shares, with a price target of $3.76. He was the first prominent analyst to downgrade Citi to sell in 2007, when the stock was trading around $48. He initiated Citi at sell in at CLSA in the spring of last year when it was trading around $3. He has maintained the rating ever since, even while others have gotten far more bullish on Citi's prospects.

Mayo had a chance encounter with CEO Vikram Pandit in Boston this summer, and pointed out that he hadn't been given the privilege of a private conference in quite some time, even though other analysts had visited with Citi's top guns, sometimes on several occasions. On Tuesday, Mayo said Citi executives finally agreed to meet with him by the end of September, following the flood of negative attention they've gotten for snubbing him.

It seems they've held out so long because he's one of the few who has the guts to say: Sell.

--Written by Lauren Tara LaCapra in New York.

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