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Some interesting and fairly contrarian comments from Andrew Garthwaite at Credit Suisse.  Garthwaite makes the argument in favor of U.S. banks (over European banks) based on the following 10 points:

  1. Economic growth momentum is improving in the US relative to Europe.
  2. The move in the spread between US and German bond yields suggests the de-rating of US banks relative to European banks is now complete
  3. We have already seen the bulk of the dollar weakness.
  4. US banks have de-leveraged more than their European peers and have lower loan-to-deposit ratios.
  5. US bankruptcies are set to fall significantly.
  6. Regulation risk is declining in the US relative to Europe. We expect US banks to increase dividends beginning in 1Q 2011.
  7. Lending conditions are consistent with good loan growth next year.
  8. US housing risk is overstated.  Valuation is at a record low (the housing affordability index is at an all-time high). The fact that roughly 70% of the US mortgage market owned or guaranteed by the government makes the banks less sensitive to further deterioration in the housing market.
  9. Consolidation potential – this is particularly likely amongst the smaller banks.
  10. Valuation looks attractive. PPP at 5.5x— 24% below the historical average of 7.4x (that discount increases to 40% if we assume more benign write-downs in line with IMF projections).

Source: Credit Suisse

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