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KBW upgrades Citi, Wells Fargo


* Keefe Bruyette & Woods Inc. analyst Brian Kleinhanzl upgraded Citigroup Inc. and Wells Fargo & Co. to "outperform" from "market perform."

Kleinhanzl thinks that Citi will be able to increase its capital returns, deriving slightly higher returns. The analyst has increased conviction on higher capital return after Federal Reserve Board Governor Daniel Tarullo's retirement. The analyst thinks that the company still needs to execute its growth strategy, but it will be able to move its capital return closer to its peers.

In addition, the analyst noted that the uncertainty surrounding Wells Fargo's sales practices scandal has reduced after the company decided to settle lawsuits related to the scandal. The analyst thinks that the company will be able to overcome "growth challenges" related to its retail banking segment. He highlighted that net interest margins are an important factor for him, and he thinks that the company will be able to generate above-peer net interest margin, leading to higher returns.

Furthermore, moving into the first-quarter earnings season, the analyst recommended Wells Fargo and Bank of America Corp., which is rated "outperform" already, while he ranked State Street Corp. at "underweight." He expects Wells Fargo and BofA to show best improvement in net interest margin quarter over quarter.


* Stephens Inc. analyst Tyler Stafford initiated Preferred Bank with an "equal-weight" rating and a price target of $58.

The analyst thinks that the company has the potential to generate return in the long term, based on its strong organic growth, substantial insider ownership, above-peer efficiencies, impressive return profile, and niche relationship with the Chinese-American community. The company's profile is supplemented by "one of the most asset sensitive loan profiles." The analyst highlighted that the company has always shown impressive loan growth, in high double digits.

The analyst thinks the stock is fairly valued.