Banks

Banks: Citigroup views banks are likely to be range-bound in 2H10 with DBS the top pick. Despite record 1H10 profits, sees banks underperforming as earnings headwinds mount & growth expectations moderate into 2011. Slower 2H GDP growth, margin pressure (interest rates to stay low) & rising costs (higher funding costs from regional markets & duration mismatch) offset fee recovery & cycle-low provisions.

The current surge in mortgage growth could slow sharply in 2011E as property measures take hold. Sells: UOB ($17.80 target,1.45x 2010 P/B), OCBC ($8.40 target, 1.51x P/B). Hold DBS ($14.40 target, 1.23x P/B) for its lower relative valuation & stronger 2Q earnings momentum vs peers.