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Citi’s Global Banks Team led by Ronit Ghose just published its massive 72-page Global Banks – Summer 2012 report.The report includes their Global Top Picks: a list of five banks that “have ratings strength, are corporate investment bank market share winner and look attractively valued.”
The list consists of three developed market banks and two emerging market banks.
The only thing all five have in common is that not one is based in the euro area.
“Political and sovereign risks remain high,” the analysts write. “We remain cautious on Euro banks which despite trading at low multiples are in a multi- year deleveraging process.”
For your convenience, we included 2012 return on equity (ROE) and expected return based on Citi analysts’ target prices for each bank.
Return On Equity: 21.4%
Expected Return: 36.5%
Credicorp is the largest bank in Peru, with over 30% loan market share. It's riding on Peru's high GDP growth rate. Peru also has low a loan-to-GDP ratio relative to other Latin American countries.
Return On Equity: 8.8%
Expected Return: 27.8%
Citi is cautious on the U.S. banking sector due to low interest rates, a weak economy, and regulatory overhangs. However, JP Morgan has a strong balance sheet and surplus capital.
Return On Equity: 5.4%
Expected Return: 58.6%
Citi recently raised its earnings forecasts for Japanese banks due to lower loan loss provisions in the wake of the Japanese earthquake. Japanese banks are also expected to capitalise in overseas markets as European banks continue to deleverage. Citi believes MUFG is in the best position to take advantage of these trends.
Return On Equity: 23.8%
Expected Return: 28.7%
Emerging market banks are exposed to contagion risk that could arise from the euro debt crisis. Russia is particularly exposed due to its commodities exports. However, Citi believes Russian banks offer attractive value. Sberbank in particular stands to benefit from increasing its retail lending business in a market where penetration is low.
Return On Equity: 12.2%
Expected Return: 29.0%
The UK is considered a safe haven compared to the euro area. Standard Chartered has strong capital ratios and is benefitting from double-digit loan growth rates to Asia and other emerging markets. Standard Chartered also stands to benefit from the ongoing deleveraging going on among the European banks.
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