NEW YORK (TheStreet) — With expectations of strong mortgage banking results, continued commercial loan growth and improvement in consumer credit, Morgan Stanley analyst Betsy Graseck on Monday listed five favored bank stocks.

Citing Federal Reserve data “which reflects C&I growing +12% y/y and +15% q/q in most recent week, along with other improved economic indicators, a domestic market share grab by U.S. banks from European banks pulling back, along with “excess capital and liquidity at select banks, and an increased willingness to lend,” Graseck said that Morgan Stanley favored four super-regionals, heading into earnings season, including U.S. Bancorp , PNC Financial Services Group , BB&T and Wells Fargo ,” and also listed Capital One as favored, among credit card lenders.

Graseck also expects investment banking fees to rebound for the four “Money Center Banks” covered by Morgan Stanley, and estimates that total capital markets volume for the group will rise 14% during the first quarter from the fourth quarter, although the volume will still be down 9% year-over-year:

For Bank of America , Morgan Stanley expects investment banking advisory and underwriting fees to total $1.4 billion during the first quarter, increasing 33% from the fourth quarter, but declining 8% from the first quarter of 2011. Graseck raised here first-quarter earnings estimate for BAC to six cents a share, on lower expected mortgage putback costs. The analyst estimates the company will earn 55 cents a share this year, followed by EPS of 97 cents during 2013. Graseck rates the shares “Equal Weight,” with a $9.00 price target.
Morgan Stanley estimates that Citigroup will report first-quarter investment banking revenue of $1.0 billion, increasing 60% from the fourth quarter, and 20% year-over-year. On March 18, Graseck had raised her first-quarter EPS estimate for Citi to 88 cents from 66 cents, because of the improved capital markets volume, lower credit card loan losses, and “gains in special asset pool on credit spread tightening.” The analyst noted that here estimate excluded “$700m of debit valuation adjustment losses (16c per share) and $1.1b gain on sale of its stake in the Indian lender Housing Development Finance Corp. (24c per share).” Graseck has a neutral rating on Citigroup, with a $42 price target, and estimates the company will earn $3.67 a share this year, followed by 2013 EPS of $4.40.
For JPMorgan Chase , Graseck estimates first-quarter investment banking revenue of $1.7 billion, increasing 49% from the fourth-quarter, but down 7% from a year earlier. Graseck has an “Overweight” rating on JPMorgan, with a $60 price target. The analyst on March 18 raised her first-quarter EPS estimate for JPM to $1.22 from $1.07, on the stronger expected investment banking volume, as well as “stronger mortgage banking origination results driven by higher gain on sale, greater market share given BAC’s pull-back and higher estimated industry-wide origination volumes from refis,” and lower credit card losses. Graseck estimates the company will earn $4.88 a share during 2012, followed by 2013 EPS of $5.63.
Morgan Stanley expects Goldman Sachs to post first-quarter investment banking revenue of $1.1 billion, increasing 26% from the previous quarter, but down 15% from a year earlier. Graseck on March 18 raised her first-quarter EPS estimate for Goldman to $3.25 from $2.16, on stronger underwriting and trading revenues, and “positive marks in the investing and lending segment given rising asset prices this quarter.” Graseck has a neutral rating on the shares, and estimates Goldman will earn $11.10 a share this year, followed by 2013 EPS of $13.21.

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