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10 Bank Stocks — Picks and Pans: Market Pro

Which financials will break out as leaders in 2010? Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics, and Jack Ablin, executive vice president and chief investment officer of Harris Private Bank, shared their bank sector outlooks.

“The stock market is going to go up and down, but the fundamentals are going to remain very difficult,” Whalen told CNBC.

“Low interest rates, the Fed’s purchases of assets, various factors have been subsidizing banks during the entire year.”

Whalen said some of the smaller and "more righteous" names in banking sector will show improvement, such as Bank of Hawaii , Hudson City Bancorp , Westamerica Bank and IberiaBank.

“Some of these banks have been a buyer of failed institutions and that’s going to continue…It’s a very attractive way to grow your franchise,” he said.

However, Whalen said larger institutions such as Wells Fargo , Bank of America and JPMorgan Chase , and regionals such as SunTrust Banks, are going to be under continued pressure in 2010. It will also be tough for broker deals like Goldman Sachs and Morgan Stanley, he added.

Ablin's View: The 'Breakdown' Level

In the meantime, Ablin said he still likes the financial sector, as it remains relatively cheap to its peers by historical standards.

“The industry broke out last August, but have since underperformed the S&P by about 4.5 percent," he said. "So we like the sector...but if financials underperform the market by 5 percent from here, we’re going to call that a breakdown and move on.”

Ablin’s other sector favorites include materials, discretionary and technology.

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Disclosures:

Whalen does not own shares of WFC, BAC, JPM, STI, UBS, GS or MS.

No immediate information was available for Ablin or his firm.

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