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More Bank Dividend Hikes, Buybacks Ahead: Pro

Katie Little
Tuesday, 18 Dec 2012 | 1:36 PM ET
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Following a jump in bank stocks this year, one analyst thinks the good news will continue for investors in 2013 in the form of increased dividends in the first half of the year.

In March, a number of banks announced increased dividends and buybacks after 15 of 19 banks passed the Federal Reserve's stress tests. The Fed examined whether banks would have adequate capital to continue lending in the event of a worst-case scenario that assumed a 13-percent jobless rate, a 50-percent drop in stocks, a 21-percent decline in housing prices and a significant contraction of other major world economies.

"Come March of next year, we expect the exact same thing," said Jason Goldberg, an analyst at Barclays Capital. "We expect more banks to raise dividends and more stocks to buy back stock. It's funny to talk about that given where this industry was with capital just three, four, five years ago, but right now, it's on much more firmer ground."

Goldberg told CNBC's "Squawk on the Street" that he expects the "vast majority" of the more than 20 banks he covers to boost dividends in the first half of next year.

Banking on Financials
Jason Goldberg, Barclays, explains how long he expects banks to get a boost from Meredith Whitney's latest upgrades on Citi, Bank of America and Discover Financial.

"The industry has record capital, record liquidity and growing earnings," he added.

So far this year, bank stocks have risen sharply. The KBW Index, which consists of the stocks of 24 banking companies, has increased about twice as much as the S&P 500.

When bank stress tests are released again in March, Goldberg thinks the results will be positive.

Goldberg maintains an "equal weight" rating and a $10 price on Bank of America's shares."Clearly it made a lot more progress on the capital front during the course of 2012 than we would have anticipated," he said.

Bank of America currently trades at a price-to-earnings ratio of around 31.3, nearly twice as much as Citigroup's 16.6 ratio and more than three times JPMorgan Chase's 9.3 ratio.

Goldberg said he would not be necessarily be surprised to see a pullback in Bank of America's shares as the calendar turns.

The KBW Bank Index has rallied following the U.S. presidential election — a rise that Goldberg said he will probably continue initially if lawmakers reach a deal to avert the looming "fiscal cliff."

"At the end of the day, there are some still structural long-term issues that probably don't get decided in this round of the negotiations that could weigh on the economy longer term," he said.

—By CNBC.com's Katie Little; Follow her on Twitter at @katie_little

Additional News: Citigroup to Cut 11,000 Jobs

Additional Views: Banks Could Have Record Fourth Quarter: Bove

Disclosure: Both Jason Goldberg and his firm own shares of Citigroup stock. Barclays Capital also disclosed an investment banking client conflict with Citigroup.

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