10 Financial Stocks With Upside

NEW YORK (TheStreet) -- JPMorgan Chase (JPM), Itaú Unibanco Holding (ITUB), Citigroup (C), HDFC Bank (HDB), Bank of America (BAC), Credit Suisse Group (CS), UBS (UBS), Lloyds Banking Group (LYG), ICICI Bank (IBN) and Barclays Plc (BCS) have upside potential of 20% to 92%, based on analysts' consensus estimates of 12-month price targets.

We have identified banking and financial services stocks panning the U.S., Brazil, India, Japan, Switzerland and the U.K. with a minimum market capitalization of $25 billion.

These stocks are expected to gain up to 92% over the next 12 months with a mean upside value of 44%, according to analysts polled by Bloomberg. The stocks have a mean buy rating of 68%.

In comparison, other stocks such as Westpac Banking Corporation ( WBK), M&T Bank Corporation ( MTB), Banco Santander S.A. ( STD), U.S. Bancorp ( USB) and Mizuho Financial Group ( MFG) are less capitalized and offer negligible upside potential.

10. Lloyds Banking Group ( LYG) is a U.K.-based financial services company operating in the retail, wholesale, international banking and insurance segments.

Lloyds focused on downsizing the group's risk profile further in the first quarter of 2011. It has reduced the non-core assets portfolio by $34 billion to $285 billion during the quarter. Driven by deposit growth, the aggregate of core customer loans and advances and deposits increased from £842.0 billion at the year-end to £847.8 billion as on March 31, 2011

The group's impairment charge stood at $4.25 billion, predominately due to Ireland's impairment charge of $1.9 billion, which was higher than initially estimated. In the first quarter of 2010, impairment charge was $3.95 billion and $6.1 billion in Dec. 2010. The Tier-1 capital ratio at the end of the March quarter was 11.6% and capital adequacy ratio was 15.2%.

Higher funding costs piled pressure; net interest margin came in at 2.07% compared to 2.08% in 2010 and 2.12% during Dec. 2010. On average, analysts expect the stock to gain 84% over the next one year.

9. Itau Unibanco ( ITUB) provides banking services in Brazil and is the tenth largest bank in the world by market value.

The bank's first quarter results topped estimates. Net interest income increased 14.7% to $7.2 billion, driven by rapid growth of advances. However, there was some margin contraction in the March quarter. Overall, advances at the end of March were 21% higher than the same period last year.

The risk of bad loans looms large as the bank made higher provisions sequentially. The Tier-1 capital ratio at the end of the March quarter was 15.8% and capital adequacy ratio was 15.2%. Provision for loan loss stood at $1.9 billion, increasing 21% sequentially and 6.5% from the same period last year. Overall, net profit improved 14.8% in the March quarter.

On a higher equity base, return on equity for the quarter was 23.4% compared to 24.4% a year back. The stock could deliver up to 24% in the next one year. Of the 13 analysts covering the stock, 9 rate a buy. There are no sell ratings for the stock, as per Bloomberg consensus.

8. JPMorgan Chase ( JPM) is a global financial services firm with businesses such as commercial banking, investment banking, asset management and private equity.

The company reported 2011 first quarter net income of $5.6 billion, higher than $3.3 billion achieved in the first quarter of 2010. The company's investment banking and retail financial services segments fared well, recording net profit growth of 58% year-over-year.

Jamie Dimon, the company's CEO said, "We strengthened our fortress balance sheet, ending the first quarter with a strong Basel 1 Tier 1 Common ratio of 10%. Looking forward, we intend to operate the business with the objectives of maintaining a Basel I Tier 1 Common ratio of at least 9% and meeting the Basel III requirements substantially ahead of time. Our earnings power will allow us to generate significant capital in excess of our objectives, enabling us to invest aggressively in our future." The Tier-1 capital ratio at the end of the March quarter was 12.1% and capital adequacy ratio was 15.5%.

During the quarter, JPMorgan provided credit and raised more than $450 billion capital and originated mortgages, offered credit cards, increased credit to small businesses, and lent to not-for-profit organizations, government bodies and corporations.

The stock is trading at 8.9 times its estimated 2011 earnings and analysts expect the stock to gain 27% over the next one year.

7. Bank of America ( BAC) is one of the world's largest financial conglomerates, offering a range of services that include banking, investment, asset management, and financial and risk management products and services.

The bank reported net income of $2 billion for the first quarter of 2011, compared to $3.2 billion in the year-earlier period and a net loss of $1.2 billion in 2010 fourth quarter. Higher net income resulted from lower credit costs, higher fee income, and investment gains.

Credit quality improved in the first quarter of 2011, with net write-offs declining across most portfolios compared to the first quarter of 2010. The bank's loan book expanded $101 billion in the first quarter of 2011 -- the third quarter of consecutive loan growth -- while deposits grew 5%. Bank of America is estimated to have provided $144 billion in the first quarter of 2011 towards first mortgages, consumer business cards, home equity products, and other consumer credit.

The Tier-1 capital ratio at the end of the March quarter was 11.2% and capital adequacy ratio was 15.8%. The stock trades at 11.4 times its estimated 2011 earnings and is likely to deliver 43% return in the next one year.

6. HDFC Bank ( HDB) is an India-based bank engaged in principal business activities of retail and wholesale banking and treasury operations.

The bank's March quarter (fourth quarter of fiscal 2011) results were in line with estimates. Net interest income grew 21% year-on-year on a robust 27% growth in advances, compared to same period last year. Net income grew to $250 million, up 33% compared to March quarter of last fiscal. A healthy net interest income growth coupled with strong growth in other income boosted profit growth.

Asset quality improved sequentially as gross nonperforming assets in the March quarter declined to 1.05% from 1.11% in the previous quarter. However, restructured loans increased marginally to 0.4% of loans from 0.3% in the prior quarter. The provision coverage further expanded to 82.5% from 81% in the December quarter.

Margins remained stable at 4.2% and the cost-to-income ratio rose to 49% following higher operating expenses.

The Tier-1 capital ratio at the end of the March quarter was 12.5% and capital adequacy ratio was 16.5%. The stock will likely deliver 20% over the next one-year and trades at 3.7 times its fiscal 2012 book value.

5. Citigroup ( C) is a diversified, international financial services conglomerate.

Net credit losses were $6.3 billion, sliding 25% from 2010 first quarter. Consumer net credit losses dropped 32% to $5.4 billion, driven by continued improvement in credit cards and residential real estate lending. As a sign of improving credit quality, Citigroup's total allowance for loan losses at the end of March was $37 billion, or 5.8% of total loans, down from $49 billion, or 6.8%, in the same period last year.

The Tier-1 capital ratio at the end of the March quarter was 12.9% and capital adequacy ratio was 16.6%. Net income reported for first quarter 2011 was $3 billion, declining from $4.4 billion in the first quarter of 2010, but doubling sequentially.

For 2011 first quarter, Citigroup reported revenue of $19.7 billion, narrowing 22% from 2010 first quarter. Net interest revenue was $12.2 billion, or down 16% from the prior year period, largely attributable to declining loan balances in local consumer lending.

Citicorp's loans grew 10% compared to same quarter last year, with 6% growth from consumer loans and 16% in corporate loans. The stock is trading at 10.6 times its estimated 2010 earnings with a potential upside of 92% in the next one year.

4. Barclays Plc ( BCS) is a London-based financial services provider engaged in the retail, corporate, and investment banking services. More than half of the financial major's income is generated from Europe, with the U.K. contributing the bulk.

For March 2011 quarter, gross loans and advances expanded 5% compared to the same period in 2010, driven by higher growth in mortgage loans. Gross new lending to U.K. households and businesses increased 11% during the period.

Impairment costs at the end of the March quarter stood at $1.48 billion, reducing from $2.4 billion in the same period last year. The year-to-date annualized loan loss rate was 76 bps compared to 112 bps during the same period of 2010. The Tier-1 capital ratio at the end of March quarter was 13.5% and capital adequacy ratio was 16.9%.

Adjusted profit before tax was $3.28 billion, up 10% compared to $2.98 billion in first quarter of 2010 and increasing 63% sequentially from the fourth quarter of 2010. The most profitable segments were retail and business banking, with profit before tax at $1.13 billion, up 21%.

Return on average shareholder equity stood at 10.1%, compared to 9.3% in the same period last year. The stock trading at 8.7 times its estimated 2011 earnings and analysts expect it to gain 76% over the next one year.

3. ICICI Bank ( IBN) is the largest private bank in India providing a broad spectrum of services in the retail and commercial space.

During the March quarter, the bank's results met consensus estimates. Net profit rose 44% year-over-year to $330 million, led by strong growth in the core income and decline in bad loan provisions.

Net interest income grew 23.3% during the quarter, aided by margin expansion and strong growth in advances. Overall advances in the March quarter grew 4.7% sequentially, boosted by agriculture, small and medium enterprises and the retail segments.

The bank's asset quality has improved over the past three quarters. Gross bad loans declined to 4.47% from 4.75% in the previous quarter. Provisions for bad loans declined 17.4% sequentially during the quarter, and provision coverage ratio expanded to 76%.

The Tier-1 capital ratio at the end of the March quarter was 12.9% and capital adequacy ratio was 19.2%. The stock is expected to deliver 24% in the next one year.

2. UBS ( UBS) is a Switzerland-based financial services company offering wealth management, asset management and investment banking services on a global and regional basis.

During the first quarter of 2011, net profit increased to around $2 billion from $1.9 billion in the fourth quarter of 2010, with diluted earnings per share of 53 cents compared to 49 cents in the prior quarter.

The group's revenue rose to $9.4 billion compared to $8 billion in the first quarter of 2010. Pre-tax profit rose to $2.5 billion from $1.4 billion in the December quarter.

The Tier-1 capital ratio at the end of March quarter was 17.8% and capital adequacy ratio was 20.4%. The return on equity was 15.5% from 16.7% in the December quarter. Return on assets stood at 2.6%, compared to 2.3% in the same period.

Of the 43 analysts covering the stock, 49% recommend a buy. Analysts surveyed by Bloomberg foresee an average 12-month price target of $23.2, nearly 20% higher than the stock's current price.

1. Credit Suisse Group ( CS) is a Switzerland-based integrated bank operating in private banking, investment banking and asset management segments.

During the first quarter of 2011, fair value losses were around $700 million from its own debt and stand-alone derivatives. The Tier-1 capital ratio at the end of the March quarter was 17.2% and capital adequacy ratio was 21.9%.

Net income for the March quarter was $1.25 billion on net revenue of $9.3 billion. Return on equity stood at 13.4%.

On the business performance, Brady W. Dougan, Credit Suisse's CEO, said in a press statement, "In a quarter marked by significant market uncertainty, we have maintained our strong momentum with clients, gaining market share and generating $21.7 billion net new assets. At the same time, we have continued to work with regulators to help build a more robust financial system, spearheading the creation of a market for contingent convertible capital."

Analysts expect the stock to return 34% in the next one year with 100% buy ratings.

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