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Jefferies Bounce No Reason to Buy Banks, Pro Says

Financial stocks rebounded Tuesday, with Jefferies shares soaring 22 percent midday, but it may not be time to jump back into banks yet, one “Fast Money” pro said.

Jeffrey Harte, principal at Sandler O’Neill, sounded positive on the investment bank, which reported earnings of 21 cents a share and announced a quarterly dividend of 7.5 cents a share.

“We’re north of one-times tangible book value again, and it gets tough to say they’re going to earn a sub 10, 11 percent ROTE in the near term versus a Goldman Sachs trading it three-quarters book value,” he said. “So, a good quarter for Jeffries but valuation starts creeping in again.”

Harte issued a “hold” rating on Jefferies stock with a 12-month target of $11 per share, saying that the bank’s solvency issues had been overblown.

“Their business model has evolved — or devolved, depending on how you want to look at it — into a Goldman Sachs, Morgan Stanley kind of wholesale balance-sheet-driven investment bank. Those investment banks are getting subpar valuations right now. Jeffries is now getting a premium valuation now.”

Harte’s banking pick: Citigroup.

“I think it remains underappreciated and underrespected and misunderstood on the Street. It’s trading at half the tangible book value. I think they can surprise on earnings. I think they can surprise on capital,” he said. “When you’re looking at banks, they’ve got a lot less exposure to the mortgage issue, which we’re awfully concerned about, and a lot more exposure to the kind of international, non-developed consumer market where you’re still seeing a lot of growth.”

“Fast Money” trader Steve Cortes said the valuation metric doesn’t necessarily make sense with banks, having tried to buy Goldman Sachs shares over the past year.

“When the best-in-breed name — and I consider Goldman to be that among this space — is lagging this badly, it tells me that you need to stay away, if not be short,” he said.

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Trader disclosure: On Dec. 20, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Terranova is long VRTS; Terranova is long IBM; Terranova is long LQD; Terranova is long MUB; Terranova is long EMC; Terranova is long CSCO; Terranova is long AXP; Terranova is long SBUX; Terranova is long TRLG; Murphy owns AKS; Murphy owns BAC;

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Bank of America Corporation (BAC) - Sandler O'Neill expects to receive or intends to seek compensation from Bank of America Corporation for investment banking services in the next three months. Sandler O'Neill has received compensation from Bank of America Corporation for providing products or services other than investment banking services in the 12-month period ending as of the second most recent month preceding the date of this report. Bank of America Corporation is a client of and receives non-investment banking securities-related services from Sandler O'Neill (based on information as of the end of the second most recent month immediately preceding the date of this report). The reviewer of this report owns shares of stock of Bank of America Corporation.

Bank of New York Mellon Corp. (BK) - Sandler O'Neill expects to receive or intends to seek compensation from Bank of New York Mellon Corp. for investment banking services in the next three months. Bank of New York Mellon Corp. is a client of and receives non-investment banking securities-related services from Sandler O'Neill (based on information as of the end of the month immediately preceding the date of this report).

Goldman Sachs Group, Inc. (GS) - Sandler O'Neill has received compensation from Goldman Sachs Group, Inc. for providing products or services other than investment banking services in the 12-month period ending as of the second most recent month preceding the date of this report. Goldman Sachs Group, Inc. is a client of and receives non-investment banking securities-related services from Sandler O'Neill (based on information as of the end of the month immediately preceding the date of this report).

Citigroup, Inc. (C)- Sandler O'Neill has received compensation from Citigroup, Inc. for investment banking services in the past 12 months. Sandler O'Neill expects to receive or intends to seek compensation from Citigroup, Inc. for investment banking services in the next three months. Sandler O'Neill has received compensation from Citigroup, Inc. for providing products or services other than investment banking services in the 12-month period ending as of the second most recent month preceding the date of this report. Citigroup, Inc. is a client of and receives non-investment banking securities-related services from Sandler O'Neill (based on information as of the end of the month immediately preceding the date of this report). Citigroup, Inc. was a client of Sandler O'Neill in the 12-month period ending as of the second most recent month immediately preceding the date of this report. During that period, Sandler O'Neill provided investment banking services to Citigroup, Inc.

Morgan Stanley (MS)- Sandler O'Neill has received compensation from Morgan Stanley for providing products or services other than investment banking services in the 12-month period ending as of the second most recent month preceding the date of this report. Morgan Stanley is a client of and receives non-investment banking securities-related services from Sandler O'Neill (based on information as of the end of the month immediately preceding the date of this report).

Jefferies Group, Inc. (JEF)- Sandler O'Neill has received compensation from Jefferies Group, Inc. for investment banking services in the past 12 months. Sandler O'Neill expects to receive or intends to seek compensation from Jefferies Group, Inc. for investment banking services in the next three months. Jefferies Group, Inc. was a client of Sandler O'Neill in the 12-month period ending as of the second most recent month immediately preceding the date of this report. During that period, Sandler O'Neill provided investment banking services to Jefferies Group, Inc.

Northern Trust Corporation (NTRS)- Sandler O'Neill expects to receive or intends to seek compensation from Northern Trust Corporation for investment banking services in the next three months. As of the date of this report, Sandler O'Neill currently acts as a market maker in the securities of Northern Trust Corporation. Sandler O'Neill has received compensation from Northern Trust Corporation for providing products or services other than investment banking services in the 12-month period ending as of the second most recent month preceding the date of this report. Northern Trust Corporation is a client of and receives non-investment banking securities-related services from Sandler O'Neill (based on information as of the end of the month immediately preceding the date of this report).

JP Morgan Chase & Co. (JPM)- Sandler O'Neill expects to receive or intends to seek compensation from JP Morgan Chase & Co. for investment banking services in the next three months. Sandler O'Neill has received compensation from JP Morgan Chase & Co. for providing products or services other than investment banking services in the 12-month period ending as of the second most recent month preceding the date of this report. JP Morgan Chase & Co. is a client of and receives non-investment banking securities-related services from Sandler O'Neill (based on information as of the end of the month immediately preceding the date of this report).

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