Updated with information about the Federal Reserve's rules proposal for enhancing oversight of the nation's largest financial institutions.

NEW YORK ( TheStreet) -- TheStreet has identified the 10 actively traded New York bank stocks with the most upside potential for 2012.

Using data provided by SNL Financial, we isolated the bank and thrift holding companies headquartered in the Empire State, with three-month average daily trading volume of at least 50,000 shares, then pared down the list to the 10 names with the most upside potential in 2012, based on mean price targets among analysts polled by FactSet.

There are many familiar names on the list, with the largest banks seeing the greatest discounts to tangible book value and forward earnings estimate because of regulatory threats to revenue, including the reduced interchange fee income brought about by the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Federal Reserve's final regulations based on the Volker Rule's requirement to curtail banks' proprietary trading.

Other threats to the large banks include European exposure, and even though the banks have detailed relatively modest exposure on their balance sheets, what investors have no way of knowing -- and what Dodd-Frank didn't address -- is how much off-balance-sheet risk the banks might have from the tangled web of credit default swaps and other derivative investments.

The Fed's release on Tuesday of a new 173-page proposal, with new rules to strengthen oversight of large banks didn't settle the largest banks' ultimate capital requirements, although the regulator did say it would incorporate the Basel III requirements for enhanced capital buffers for systemically important banks.

The regulatory capital issue may continue to drag on the shares of banks with over $50 billion in total assets, until the Fed begins phasing in its new capital rules in 2014.

Still, for the largest New York banks, analysts generally give a thumbs-up, because of the great amount of additional capital the group has built-up over the past few years and the expectation that following the third round of Federal Reserve stress tests in January, many of the large industry players will be allowed to significantly increase their return of capital to investors through dividends and share buybacks.

Of course, investors may be wondering if 2012 is the year when the analysts finally get the big banks right. After all, the valuations have been heavily discounted for years now, and many of the analysts have been saying "buy" all along.

The smaller names on the list trade at higher multiples than the biggest banks, which isn't surprising, with lower (or no) European exposure, less impact on capital requirements from Basel III, less of an impact from Durbin, and a smaller political target-on-the-back.

Here's the list of 10 liquid New York bank stocks with the most upside for 2012, ordered by ascending upside potential:

10. Flushing Financial Corp.

Shares of Flushing Financial Corp. ( FFIC) of Lake Success closed at $12.64 Friday, for a year-to-date decline of 6%, which is the best performance among this group of 10 New York bank and thrift holding companies. Based on a quarterly payout of 13 cents, the shares have a 4.11% dividend yield.

The consensus 12-month price target for the shares among analysts polled by FactSet is $14.83, implying 17% upside.

Flushing's dividend is very well supported by earnings, as the company has paid-out less than half of its operating earnings over the past five quarters. The company was included among TheStreet's 10 Bank Stocks Ready for a 2012 Dividend Boost.

The company on Sept. 28 announced a new repurchase plan, authorizing buybacks of a million common shares, after completing a previous buyback plan during the third quarter.

KBW analyst Jefferson Harralson last Thursday mentioned Flushing as a "turnaround name" that could perform well in 2012, according to an SNL Financial report, after KBW upgraded the entire sector of small and mid-cap banks to "Overweight," citing the smaller players' discounted valuations and lower regulatory concerns.

KBW analyst Matthew Clark in November reiterated his "Outperform," rating for Flushing, with a $16 price target, saying the company continued "to hold the margin steady as lower rates on earning assets are offset by lower deposit pricing, strong core deposit growth, & the modification of borrowings," and that a "potential bulk sale" of loans could "act as a positive catalyst" for the shares. Clark estimates the company will earn $1.20 a share in 2012.

The shares trade for just under book value, according to SNL, and for 10.1 times the consensus 2012 earnings estimate of $1.26 a share, among analysts polled by FactSet.

Four out of six analysts covering Flushing Financial Corp. rate the shares a buy. The remaining analysts have neutral ratings.

Interested in more on Flushing Financial Corp.? See TheStreet Ratings' report card for this stock.

9. New York Community Bancorp

Shares of New York Community Bancorp ( NYB) of Westbury closed at $11.97 Friday, declining 32% year-to-date. Based on a quarterly payout of 25 cents, the shares have a dividend yield of 8.35%. This is the highest dividend yield among actively traded banks (excluding those listed on the Pink Sheets) with average daily trading volume of at least 50,000 shares, according to data provided by SNL Financial.

A consensus price target of $14.24 implies 19% upside for the shares.

New York Community Bancorp has maintained the 25-cent quarterly dividend payout for 31 consecutive quarters, however, some of the pressure on the shares this year has resulted from a high dividend payout ratio, with the company paying out over 90% of operating earnings over the past two quarters.

Investors will be looking for increased revenue from the company's mortgage business -- acquired when New York Community purchased the failed AmTrust Bank of Cleveland from the Federal Deposit Insurance Corp. in December 2009 -- to boost earnings in 2012.

Guggenheim Securities analyst David Darst in October reiterated his "Buy" rating for New York Community, after the company reported its third-quarter results, saying that "the dividend is secure and is a key component of investor return," and that he expected the lender to "grow core earnings over the next two years by deploying liquidity into loans with improving market conditions for core loan growth." Darst's price target for the shares is $15.00, and he expects the company to earn $1.09 a share in 2012.

The shares trade for 10.9 times the consensus 2012 EPS estimate of $1.10, among analysts polled by FactSet, and for 1.7 times tangible book value, according to SNL.

Out of 18 analysts covering New York Community Bancorp, eight rate the shares a buy, nine have neutral ratings, and one analyst recommends selling the shares.

Interested in more on New York Community Bancorp? See TheStreet Ratings' report card for this stock.

8. Dime Community Bancshares

Dime Community Bancshares ( DCOM) of Brooklyn has seen its stock pull back 18% year-to-date, closing Friday at $11.55. Based on a quarterly payout of 14 cents, the shares have a dividend yield of 4.85%.

Based on a consensus price target of $14.25, the shares have 23% upside potential.

Dime Community is a steady earnings performer, which was also included among TheStreet's 10 Bank Stocks Ready for a 2012 Dividend Boost, because the attractive dividend payout was less than half of the company's operating earnings, over the past five quarters.

The shares trade for 8.8 times the consensus 2012 EPS estimate of $1.33, among analysts polled by FactSet, and for 1.4 times tangible book value, according to SNL.

Four out of nine analysts covering Dime Community rate the shares a buy, while the remaining analysts all have neutral ratings.

Interested in more on Dime Community Bancshares? See TheStreet Ratings' report card for this stock.

7. First Niagara Financial Group

Shares of First Niagara Financial Group ( FNFG) of Buffalo closed at $8.50 Friday, declining 36% year-to-date.

A consensus price target of $10.89 implies 28% upside for the shares.

The company on Dec. 7 priced a $450 million common equity offering at $8.50 a share, and also priced a $350 million preferred offering with a very high coupon of 8.625%, as it raised capital in advance of completing pending purchase of 195 branches from HSBC ( HBC). First Niagara also cut its quarterly dividend in half, to 8 cents, translating to a dividend yield of 3.76%.

To address the Justice Department's concerns over First Niagara's market concentration following the branch purchase, the company has agreed to immediately sell 40 branches once the HSBC deal is completed, and also plans to sell an additional 60 branches in markets overlapping its current branch base.

Sterne Agee analyst still likes the First Niagara, although he said that it was "undeniable that the common shareholders have suffered a great deal of pain over the past six months over this transaction," with the company's "tangible book value being taken down 30%."

Kelly has an $11 price target for the shares, and estimates the company will earn 97 cents a share in 2012. "Over the next 12-18 months, as the company executes on the HSBC transaction, continues to post solid organic growth and rebuilds its capital base, we expect this significant valuation gap to other high-performing peers will begin to close," he said.

The shares trade for 8.2 times the consensus 2012 EPS estimate of $1.03, among analyst polled by FactSet, and for 1.6 times Kelly's reduced tangible book value estimate, following the December capital raise.

Out of 10 analysts covering First Niagara, four rate the shares a buy, five have neutral ratings, and one analyst recommends selling the shares.

With such a large transaction ahead, with another large divestiture of branches, 2012 will certainly be a messy year for First Niagara. Investors looking to build a position in this name need to commit for several years. The company has a very strong track record for integrating major acquisitions, but these things take time.

6. Bank of New York Mellon

Shares of Bank of New York Mellon ( BK) closed at $25.02 Friday, for a year-to-date decline of 36%. The shares have 31% upside potential, based on the mean price target of $25.02, among analysts polled by FactSet.

Based on a quarterly payout of 13 cents, the shares have a dividend yield of 2.72%.

Please see TheStreet's earnings coverage for a summary of the company's third-quarter results.

UBS analyst Greg Ketron on Friday initiated his firm's coverage of Bank of New York Mellon with a neutral rating and a $20 price target, saying he believes the company "will continue to grow its global footprint in the foreseeable future," and that although the shares are "attractively priced currently," BNY is "limited vs. peers for capital deployment and more negatively impacted by the low rate environment."

Ketron estimates that Bank of New York Mellon will earn $2.30 a share in 2012.

The shares trade for 8.0 times the consensus 2012 earnings estimate of $2.35 a share, among analysts polled by FactSet, and 2.3 times tangible book value, according to SNL Financial.

Out of 19 analysts covering Bank of New York Mellon, 10 rate the shares a buy, eight have neutral ratings, and one analyst recommends selling the shares.

Interested in more on Bank of New York Mellon? See TheStreet Ratings' report card for this stock.

5. JPMorgan Chase

Shares of JPMorgan Chase ( JPM) closed at $31.89 Friday, declining 23% year-to-date. Based on a 25-cent quarterly payout, the shares have a dividend yield of 3.14%. Based on the mean price target of $45.88 among analysts polled by FactSet, the shares have 44% upside potential.

JPMorgan stands out among the largest U.S. banks with that generous dividend payout, and following the next round of Federal Reserve stress tests, investors are hoping for an increased return of capital, with a higher dividend and/or share buybacks.

Please see TheStreet's earnings coverage for discussion of the company's third-quarter results.

Credit Suisse analyst Moshe Orenbuch on Monday said that JPMorgan was one of his firm's "top picks" among bank stocks for 2012, "due to strength and stability of the company's senior leadership team and strong balance sheet." Orenbuch sees "increased capital deployment activities in the form of higher dividends and share buyback as a positive catalyst," and is well ahead of the consensus, with a $52 price target for the shares, which is "1.4 times forward tangible book value and 10.4 times earnings," which Credit Suisse estimates will be $5.00 a share in 2012.

Of course, there will still be some major headline risk, with implied volatility for the shares, in 2012. Orenbuch estimates that JPM subsidiary Chase Home Finance -- the third-largest mortgage loan servicer as of March 31, according to Credit Suisse, citing data supplied by Inside Mortgage Finance -- will pay between $2.8 billion and $4.6 billion, as part of a settlement between the largest servicers, the federal bank regulators, and the states' attorneys general.

The shares trade for 6.5 times the consensus 2012 EPS estimate of $4.88 among analysts polled by FactSet, and for just below times tangible book value, according to SNL Financial.

Out of 25 analysts covering JPMorgan Chase, 23 rate the shares a buy and two have neutral ratings.

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

4. MetLife

Shares of MetLife ( MET) closed at $30.23 Friday, for a year-to-date decline of 30%. Based on an annual payout of 74 cents, the shares have a dividend yield of 2.45%. Based on a mean price target of $45.35 among analysts polled by FactSet, the shares have 50% upside.

Although MetLife is included here as a New York bank, the company is working hard to escape the extra Federal Reserve oversight that comes with being labeled a bank holding company. MetLife is actively peddling its relatively small MetLife Bank, NA subsidiary, which had $17.7 billion in total assets as of Sept. 30, against the holding company's $785.2 billion in assets.

MetLife's capital plan, which would have included an increase of its annual dividend, was rejected by the Fed in October. The company will also participate in the Fed's annual stress tests in January.

In addition to the subsidiary bank's deposit business, MetLife announced in October, that it was trying to sell MetLife Bank, NA's mortgage origination business, as "exiting the depository business and deregistering as a bank holding company also will enable MetLife to operate within the same regulatory framework as other insurance companies."

The holding company recorded a $65 million third-quarter goodwill impairment charge on the banking unit.

While MetLife was the 10th largest mortgage loan servicer in the U.S., with servicing volume of $116 billion as of March 31, according to Credit Suisse, which cited data provided by Inside Mortgage Finance, its risk exposure in the ongoing negotiations between the top U.S. mortgage servicers, federal regulators, and the states' attorneys general, appears to be relatively limited. Credit Suisse analyst Moshe Orenbuch on Monday estimated that MetLife's contribution to the industry settlement would range from a low of $122 million, to a high of $203 million.

Sterne Agee analyst John Nadel on Dec. 5 reiterated his "Buy" rating for MetLife, with a $46 price target, while lowering his 2012 EPS estimate slightly to $5.00, saying that the company's "capital story remains solid," as MetLife expects to have $3.5 billion in "readily deployable capital," and expects to add between $2.5 billion and $3.5 billion more in 2012.

The shares trade for 6.0 time the consensus 2012 EPS estimate of $5.04, among analysts polled by FactSet, and just 0.7 times tangible book value, according to SNL.

Out of 19 analysts covering MetLife, 16 rate the shares a buy, while the remaining analysts all have neutral ratings.

Interested in more on MetLife? See TheStreet Ratings' report card for this stock.

3. Goldman Sachs

Shares of Goldman Sachs ( GS) closed at $90.10 Friday, declining 46% year-to-date. Based on a quarterly payout of 35 cents, the shares have a 1.55% dividend yield. Based on a mean price target of $135.72 among analysts polled by FactSet, the shares have 51% upside.

Goldman is facing some serious headwinds, with the ongoing battle over the Federal Reserve's implementation of the Volcker Rule, a feature of the Dodd-Frank Wall Street Reform and Consumer Protection act -- signed into law by President Obama in July of last year -- that is supposed to ban proprietary trading by banks.

Regulators have headed back to the drawing board, as the public commentary period following the draft proposal on implementing Volcker that was issued in October, ended on Friday. The 300-page draft proposal failed to define the short-term "proprietary trading" that the regulator is required to ban.

In his report last week lowering earnings estimates for several large banks for a "weak and messy" fourth quarter, Atlantic Equities analyst Richard State last Thursday cut his fourth-quarter earnings estimate for Goldman by 60% to 90 cents, "driven by lower revenue across all business against a relatively fixed cost base." Staite has a neutral rating on the shares, and estimates the company will achieve a decent return on tangible equity of 9.4% in 2012, "on the assumption that revenues improve in both Investment banking and in the Investing and Lending division."

Staite also believes that Goldman "has the potential to increase market share as competitors, particularly European banks, drop out," although "near term trading revenue is likely to be subdued," and could decline "due to new regulations." The analyst estimates that Goldman will post 2012 EPS of $11.15.

While the analyst is neutral on Goldman, his $125 price target would be a healthy 39% return.

The shares trade for 7.0 time the consensus 2012 EPS estimate of $13.21, among analysts polled by FactSet, and 0.7 times tangible book value, according to SNL.

Out of 21 analysts covering Goldman Sachs, 12 rate the shares a buy, eight have neutral ratings, and one analyst recommends selling the shares.

Interested in more on Goldman Sachs? See TheStreet Ratings' report card for this stock.

2. Morgan Stanley

Shares of Morgan Stanley ( MS) closed at $14.98 Friday, declining 44% year-to-date. The shares have a dividend yield of 1.34%, based on a quarterly payout of five cents. Based on a mean price target of $22.76 among analysts polled by FactSet, the shares have 52% upside.

The company last week announced that it had settled with MBIA over claims related to credit default swaps on commercial mortgage-backed securities, which would result in a $1.8 billion pre-tax charge in the fourth quarter.

Richard Staite of Atlantic Equities last week estimated that Morgan Stanley would post a 51-cent loss for the fourth quarter. Staite estimated that the investment bank would post 2012 EPS from continuing operations of $1.81, for a mediocre return on tangible equity of 6.6%.

Staite has a neutral rating on Morgan Stanley, with an $18 price target, saying that his firm remains "concerned that revenues will remain weak due to a combination of macro uncertainty combined with regulatory change," and that the company "is at a competitive disadvantage due to higher funding costs," while adding that "many of these concerns are already reflected in the current valuation."

Credit Suisse analyst Howard Chen on Dec. 13 called the MBIA exposure Morgan Stanley's "single largest legacy issue," and said the settlement "improves Morgan Stanley's capital flexibility, accelerating the firm's Basel III readiness at a critical moment heading into the 2012 Fed CCAR submission," referring to the capital plan the company must submit for the Federal Reserve's annual stress tests, by Jan. 7, 2012.

The shares trade for 7.3 time the consensus 2012 EPS estimate of $2.06, among analysts polled by FactSet, and 0.6 times tangible book value, according to SNL.

Chen said that Morgan Stanley's shares "have not reflected any progress made by this management team to resolve remaining legacy issues," such as the MBIA settlement, or "measured market share gains made in the sales and trading franchise." Chen's price target for Morgan Stanley is $28, and he estimates the company will earn $1.65 a share in 2012.

Out of 21 analysts covering Morgan Stanley, 12 rate the shares a buy, seven have neutral ratings, and two analysts recommend selling the shares.

Interested in more on Morgan Stanley? See TheStreet Ratings' report card for this stock.

1. Citigroup

Shares Citigroup ( C) closed at $26.03 Friday, declining 45% year-to-date, adjusting for the 1-for-10 reverse split on May 6. Based on the mean price target of $41.34 among analysts polled by FactSet, the shares have 59% upside potential.

The company has faced some negative headlines recently, including a one-month suspension of its sales of certain investment products in Japan, and the rejection of Citigroup's $285 settlement of Securities and Exchange commission fraud charges by U.S. District Judge Jed S. Rakoff in Manhattan.

Please see TheStreet's full coverage of Citigroup's third-quarter results , including international revenue growth and the progress of Pandit's good bank/bad bank strategy of winding down non-core assets.

Credit Suisse analyst Moshe Orenbuch pairs Citigroup with JPMorgan Chase as his "top picks" among bank stocks for 2012, saying on Monday that the company has "made significant strides in improving its capital and liquidity position," and with "risk materially reduced, the balance sheet strengthened and profitability improving, the current risk/reward on the shares is attractive."

Excluding provisions for loan losses, which distort bottom-line earnings results for banks, Orenbuch expects Citigroup's "preprovision earnings to increase 9% in 2012, following a 27% contraction in 2011," with 2% revenue growth, following this year's 11% revenue decline.

Orenbuch's price target for Citigroup is $48, or "0.9 times forward tangible book value and 10.7 times 2012 earnings," which the analyst estimates will come in at $4.50 a share in 2012.

Orenbuch is out in front of the consensus with his $48 price target for Citi, but even if the shares hit that target, they will still trade at a discount to book value.

Like JPMorgan, Citigroup will be facing headline risk and volatility as the largest U.S. mortgage servicers get closer to reaching a settlement with the federal bank regulators, and the states' attorneys general. Orenbuch estimates CitiMortgage will pay between $967 million and $1.6 billion, as part of a settlement between the largest servicers.

The shares trade for 6.0 times the consensus 2012 EPS estimate of $4.35 among analysts polled by FactSet, and for just over half their tangible book value, according to SNL Financial.

Out of 22 analysts covering Citigroup, 15 rate the shares a buy, five have neutral ratings, and two recommend selling the shares.

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

>>To see these stocks in action, visit the 10 Bank Stocks with Most Upside for 2012 portfolio on Stockpickr.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

To submit a news tip, send an email to: tips@thestreet.com.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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