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Better, Not Best, Days Ahead for Banks: Analyst

Stronger fixed-income, currencies, and commodities trading will help major U.S. banks overcome weakness in equities, but don't expect business to be as good as the boom years of the past.

RBC Capital Markets banking analyst Gerard Cassidy told CNBC Friday the fixed-income business will "more than offset" weakness in the banks' equities business.

He said the first quarter is "traditionally a seasonally strong quarter" for fixed-income trading and he predicts the "numbers we'll likely see this quarter will be quite a bit better than the fourth quarter" of 2011, but probably won't exceed the "truly extraordinary" first quarter of last year.

It will be equities trading, which has been weak this quarter compared with the fourth quarter, "that will lead us into the summer with some type of stronger strength than we’re seeing right now," Cassidy said.

Between 1997 and 2006, banks traded at 2.4 times book value and three times tangible earnings, he said.

"We do not expect that to be repeated because of the lower profitability we’re going to see because of Dodd-Frank," Cassidy said. "But we do think they will trade at 1.25 to 1.5 times book, and 2 times tangible."

His top banking picks are JP Morgan Chase, Citigroup, SunTrust, Regions Financial, and Keycorp.

Cassidy has raised his 2012 and 2013 earnings estimates for Citigroup , setting a $43 price target and an “outperform” rating on the stock. He thinks the stock is undervalued and a good long-term buy.

JPMorgan is also undervalued, said Cassidy, who has a $50 price target and "outperform" rating on the stock. He has also raised its earnings per share estimates for 2012 and 2013.

JPMorgan and Citi are still riding the tailwinds of recovery in credit markets, while Goldman Sachs and Morgan Stanley are "pure plays on the capital markets business," he said.

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Trader disclosure: On Mar 23, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Joe Terranova is long VRTS; Joe Terranova is long NXPI; Joe Terranova is long IBM; Joe Terranova is long MCD; Joe Terranova is long EMC; Joe Terranova is long MSFT; Joe Terranova is long JOY; Joe Terranova is long OXY; Joe Terranova is long LQD; Joe Terranova is long POT; Joe Terranova is long TBT; Steven Weiss is long JPM; Steven Weiss is long SNDK; Steven Weiss is long BRCM; Steven Weiss is long QCOM; Steven Weiss is long BAC; Steven Weiss is long NAV; Steven Weiss is long WLP; Steven Weiss is long HAIN; Steven Weiss is long TBT; Steven Weiss is long TBF; Steven Weiss is short X; Steven Weiss is short FXA; Steven Weiss is short FCP; Steve Grasso is long ANR; Steve Grasso is long ASTM; Steve Grasso is long AVAV; Steve Grasso is long BA; Steve Grasso is long D; Steve Grasso is long FRO; Steve Grasso is long MHY; Steve Grasso is long NUAN; Steve Grasso is long MO; Steve Grasso is long PFE; Steve Grasso is long PRST; Steve Grasso is long S; Steve Grasso is long XLU; Steve Grasso is long ZAZA; Patty Edwards is long for clients AAPL; Patty Edwards is long for clients BKCC; Patty Edwards is long for clients JWN; Patty Edwards is long for clients GLD; Patty Edwards is long for clients ED; Patty Edwards is long for clients EXC; Patty Edwards is long for clients INTC; Patty Edwards is long for clients JOY; Patty Edwards is long for clients SBUX; Patty Edwards is long for clients VLO; Patty Edwards is long for clients AMZN; Patty Edwards is long for clients NKE; Patty Edwards is long for clients HLF; Patty Edwards is long for clients PM; Patty Edwards is long for clients CBI; Patty Edwards is long PM

Dan Dicker
Dan Dicker is long RDS
Dan Dicker is long BHI

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