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Halftime: Bank of America, Others Facing New Nirvana?

On Thursday, the S&P struggled with financials a generating a major drag, due to ongoing concerns that new regulations related to robo-signing could prove costly.

Adding to the headwinds, earlier in the week JPMorgan's earnings spooked the Street due to loan growth that Fast trader Karen Finerman called anemic and lingering real estate woes. Investors worry that if a best of breed bank such as JPMorgan is struggling, others are too.

”There are a myriad of reasons not to buy the sector,” comments trader Steve Grasso.

Does that mean you should you run in the other direction, especially with beleaguered Bank of America reporting on Friday?

Not necessarily.

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BofA earnings have topped estimates in four of the past five quarters

And if you’re long term bearish on financials because you anticipate a flatter yield curve, Stifel Financial analyst Chris Mutascio thinks you’ve got it all wrong.

”There’s a misperception that the 10-2 spread being so wide is good for banks,” he says during a live interview on CNBC’s Fast Money. ”(But) the banks don’t operate on the 10-2 spread, anymore.

In other words, it doesn’t matter that the spread is growing more narrow. (And in case you’re wondering the 10-2 spread is the gap between the yield on 2-year notes and 10-year notes. )

”That was a good parameter when they were more thrift in structure,” Mutascio explains, but he doesn’t think it’s terribly relevant anymore.

In fact, Chris Mutascio thinks the environment for banks could be changing for the better.

“If we see the yield curve flatten with the Fed gradually raising interest rates that would be a bit like nirvana for the banks,” he says. "We’d see margin expansion, loan growth and revenue growth."

”We would like to see the Fed move rates gradually higher, he adds. "That’s a very good environment for the banks when that happens."

That’s not to say there aren’t headwinds for the sector, there are.

Mutascio concedes that the biggest overhang probably stems from rapidly changing government regulation. “It’s keeping people on the sidelines because it prevents investors from determining the real growth rate or earnings power. That’s really weighing on them.”

Then, how should you trade?

Mutascio tells us his favorite name in the space is PNC. “It provides investors with a reasonable P/E multiple and a reasonable price to tangible book multiple. For those investors who look at P/E you're covered and those investors who look at tangible book, you're covered," he says.

"Also we think it’s going to have a decent quarter. It should be clear of some of the issues facing the mega-cap banks," he says.


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Trader disclosure: On April 14, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami owns (AGU); Adami owns (C); Adami owns (GS); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU); Grasso owns (BA); Grasso owns (C); Grasso owns (CSCO); Grasso owns (PFE); Grasso owns (JPM); Grasso owns (BAC); Grasso owns (AMD); Grasso owns (ASTM); Grasso owns (LPX); Grasso owns (PRST); Grasso owns (D); Grasso owns (LIT); Grasso owns nasdaq; Grasso owns (XMHYX); Weiss owns (JPM); Weiss owns (HBAN); Weiss owns (KEY); Weiss owns (HPQ); Weiss owns (MSFT); Weiss owns (EMC); Weiss owns (GME); Weiss owns (AKAM); Weiss owns (DVN); Weiss owns (COP); Weiss owns (HK); Weiss owns (GDX); Weiss owns (DRR); Weiss owns (UUP); Weiss owns (TBT); Weiss owns (AAPL); Weiss owns (QCOM); Weiss owns (VZ); Weiss is short (X); Weiss is short (AKS)

For Patty Edwards
Edwards is long (BKCC) for clients
Edwards is long (BMO) for clients
Edwards is long (ORA) for clients
Edwards is long (TEVA) for clients
Edwards is long (MAT) for clients
Edwards is long (AAPL) for clients
Edwards is long (TGT) for clients
Edwards is long S&P 500 for clients
Edwards is long Nasdaq 100 for clients
Edwards is long gold for clients
Edwards is long silver for for clients
Edwards is long platinum for clients

For Steve Grasso
Stuart Frankel & Co and its partners own (AMD)
Stuart Frankel & Co and its partners own (AOL)
Stuart Frankel & Co and its partners own (CSCO)
Stuart Frankel & Co and its partners own (CUBA)
Stuart Frankel & Co and its partners own (GERN)
Stuart Frankel & Co and its partners own (HPQ)
Stuart Frankel & Co and its partners own (HSPO)
Stuart Frankel & Co and its partners own (MSFT)
Stuart Frankel & Co and its partners own (NYX)
Stuart Frankel & Co and its partners own (PFE)
Stuart Frankel & Co and its partners own (PRST)
Stuart Frankel & Co and its partners own (SDS)
Stuart Frankel & Co and its partners own (UAL)
Stuart Frankel & Co and its partners own (XRX)
Stuart Frankel & Co and its partners are short (QQQQ)
Stuart Frankel & Co and its partners are short (AAPL)

Chris Mutascio
Stifel, Nicolaus & Co. Is A Market Maker In (CMA), (BAC), (BBT), (RF), (STI), (KEY), (USB), (FITB), (PNC), (WFC)
Stifel, Nicolaus & Co. Expects TO Receive/Seek Investment Banking Compensation From (CMA), (BAC), (BBT), (RF), (STI), (KEY), (USB), (FITB), (WFC) In Next 3 Months
(PNC) Is Or In Past 12 Months Was A Client Of Stifel, Nicolaus & Co. Or Affiliate
Stifel, Nicolaus & Co. Or Affiliate Has Recieved Non-Investment Banking Compensation (Securities Related Services) From (PNC) In Past 12 Months
Stifel, Nicolaus & Co. Or Affiliate Provides Or In Past 12 Months Provided Non-Investment Banking, Securities Related Services To (PNC)
Stifel Nicolaus Maintains A Business Relationship With Wells Fargo & Co.

For Daniel Fisher
Daniel Fisher has a long position in mid-term oil
Daniel Fisher owns long-term natural gas



CNBC.com with wires.

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S&P 500
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BAC
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JPM MLP ETN
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PNC
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SPDR FIN SEL
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