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Source: WSJ
By: Shane Romig, Dow Jones Newswires

BUENOS AIRES (Dow Jones)--Argentina's banking sector has good prospects due to increased lending and the possibility of a change in government next year, with the stocks of financial conglomerate Grupo Financiero Galicia (GGAL, GGAL.BA) showing the best potential, Citigroup Inc. (C) said in a report Monday.

Citigroup said that a possible defeat of the Kirchners in next year's election could provide a "confidence shock."

Either President Cristina Fernandez, or her husband and former president Nestor Kirchner, is expected to make a bid for the presidency again in 2010. While their approval ratings remain low, they may benefit from a divided and fractious opposition, although few political analysts are predicting the outcome with much confidence.

In addition, Argentine banks "showed explosive loan growth" during the second quarter and Citigroup has increased its earnings estimates for the sector "mainly on the assumption of much higher sustainable loan growth."

Citigroup said that Galicia's core earnings have accelerated a cleanup of the group's balance sheet, which should be finished by early 2011, a year ahead of Citigroup's earlier expectations. Expected total return on Galicia stock is 41%, Citigroup said.

Citigroup also upgraded BBVA Banco Frances (BFR, FRAN.BA) stock to buy as the bank has lagged recent stock price gains in the sector. Expected total return on Banco Frances stocks is 36%.

Meanwhile, Banco Macro SA (BMA, BMA.BA) was downgraded to hold on valuation, as the stock is currently trading above its "fair" book value ratio price. Citigroup expects total returns on Banco Macro stock of 22%.

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