Favorite Large Bank Picks For Jan-2012

Yesterday, major regional banks (fourteen in number) sported gains of almost 1.16 percent, collectively. Among these banks, Bank of America's share price gained the least ($0.18), while? M&T Bank Corp's share price gained the most ($3.8).

Share price gains were surprising given that the Federal Reserve proposed steps to strengthen regulation and supervision of large bank holding companies with consolidated assets equal to or greater than $50 billion or those designated to be systemically important. The proposals include risk-based capital and leverage requirements implemented in two phases that would include subjection to the Fed's capital plan rule that requires firms to develop annual capital plans, conduct stress tests, and maintain adequate capital ratios, as well as a proposal issued by the Fed to implement a risk-based capital surcharge based on the framework and methodology developed by the
Basel Committee on Banking Supervision. Firms would also be subjected to annual stress tests. Credit exposure of a covered financial firm would be limited to a single counterparty as a percentage of the firm's regulatory capital. The Fed noted that it is proposing that firms would need to comply with many of the enhanced standards a year after they are finalized. Requirements related to stress tests would take effect shortly after the rule is finalized.

Compliance with Fed's proposals would not only increase regulatory costs but would also limit strategic options for these banks. So Fed's announcement should have had a negative impact. Yesterday that didn't happen but would surely happen as the market digests the import of Fed's proposals. This should lead to adjustments, positive on some and negative on some other, in the share prices of these fourteen banks. Though I am not giving the workings of the detailed share price impacts, nevertheless I will pick my favorite stocks among these fourteen.

Fifth Third Bancorp? (NASDAQ:FITB)

Fifth Third! 's capit al position is already well in excess of established standards, likely standards, and most peers. Holding company cash is currently sufficient for more than 2 years of obligations. Minimal holding company or bank debt maturities until 2013, so need for new capital at above peer average cost of marginal capital is minimal. Fifth Third has completely exited all crisis-era government support programs and it is one of the few large banks that
have no TLGP-guaranteed debt to refinance in 2012. In addition, it has no direct European sovereign exposure; total exposure to European peripheral borrowers is less than $0.2 billion and gross exposure to European banks less than $0.3 billion.

I expect FITB share to test $15.5 and establish $15 in January 2012.

State Street Corporation? (NYSE:STT)

STT has two powerful platforms for growth namely State Street Global Services ($21.5 trillion in assets under custody and administration), and State Street Global Advisors (1.9 trillion in assets under management). Nearly 78 of its top 100 clients use both asset servicing and asset management and they account for about 35% of total management fee revenue (YTD 2011).

As of end September 2011, STT's tier 1 common ratio was 16 percent,which is significantly higher than 12.5 percent for The Bank of New York Mellon Corporation? (NYSE:BK), and 11.8 percent for Northern Trust Corporation? (NASDAQ:NTRS). Moreover, even under Basel III, STT's tier 1 common ratio was 11.7 percent, which is significantly higher than 6.5 percent for The Bank of New York Mellon Corporation (NYSE:BK), and 11.8 percent for Northern Trust Corporation (NASDAQ:NTRS).

I expect STT share to test $50 and establish $49 in January 2012.

Other stocks that I think could benefit include SunTrust Banks, Inc.(NYSE:STI), U.S. Bancorp (NYSE:USB), and JPMorgan Chase & Co. (NYSE:JPM).{$end}

SEC to appeal rejected Citigroup settlement

NEW YORK (CNNMoney) -- The Securities and Exchange Commission is appealing a federal judge's decision last month to toss out a proposed $285 million mortgage securities fraud settlement between the agency and Citigroup.
Federal judge Jed Rakoff ruled on Nov. 28 that the deal between the SEC and Citi was "neither fair, nor reasonable, nor adequate, nor in the public interest" and ordered the case to proceed to trial in July 2012.
He said that the settlement announced in October, under which Citigroup (C, Fortune 500) neither admitted nor denied the SEC's allegations, deprived the public "of ever knowing the truth in a matter of obvious public importance."
The SEC argued in a statement Thursday that the ruling "inadvertently harms investors by depriving them of substantial, certain and immediate benefits."
"We believe the court was incorrect in requiring an admission of facts -- or a trial -- as a condition of approving a proposed consent judgment," said the agency. It argued Rakoff's ruling would set a new standard for settlements that would be difficult to reach and that it is at odds with established practice.

Big bank SEC settlements: Toothless face-savers?

"Courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide," said the agency.
The SEC said the $285 million proposed settlement, "while less than investor losses, represents most of the total monetary recovery that the SEC itself could have sought at trial. An SEC settlement does not limit the ability of injured investors to pursue claims for additional relief."
Rakoff said in his ruling that given the damage done to financial markets by the alleged actions by Citigroup, a greater level of transparency is needed.

JPMorgan pays $153 million to settle mortgage case

"[I]n any case like this that touches on t! he trans parency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth," Rakoff, a U.S. district judge in Manhattan, wrote in his decision.
The SEC's pattern of allowing big banks to reach settlements without admitting or denying wrongdoing, Rakoff added, has been "hallowed by history, but not by reason."
Citigroup did not have an immediate reaction to the SEC's appeal. At the time of Rakoff's ruling, a spokeswoman for the banking giant said it respectfully disagreed with the decision.
"In the event the case is tried, we would present substantial factual and legal defenses to the charges," she added.
The SEC alleged that in 2007, Citi created and sold a mortgage-related collaterialized debt obligation, or CDO, called Class V Funding III.
According to the SEC complaint, one CDO trader characterized the asset group in internal communications as "a collection of dogshit" and "possibly the best short EVER!"
Can Wall Street thrive again?
In marketing materials, however, the assets were described as "attractive investments rigorously selected by an independent investment adviser," Rakoff's decision said.
After marketing the CDO, Citi then took a short position -- or bet against -- the security as the housing market deteriorated, bringing in a net profit of $160 million for the bank. Meanwhile, investors lost more than $700 million.
The SEC has settled a string of similar complaints in recent months, including agreements with Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500).
Rakoff, though, has been a thorn in the agency's side in recent years, rejecting a proposed $33 million settlement in 2009 between the SEC and Bank of America (BAC, Fortune 500) over allegations that BofA lied about bonuses for Merrill Lynch & Co. employees following the firms' merger.
That settlement ! was late r revised upward to $150 million, which Rakoff reluctantly approved, calling it "half-baked justice at its best."
Shares of Citi (C, Fortune 500) closed down 0.5% in trading Thursday.