Goldman conviction buy list: Citi out, Wells Fargo in

Goldman Sachs downgraded Citigroup Inc to "neutral" from "buy" citing a lack of near-term catalyst to boost its share price, and replaced it with Wells Fargo & Co on its Americas conviction buy list.

Given the market's focus on capital returns, Citigroup shares could struggle to find a near-term catalyst and that could lead to a rotation into stocks with higher near-term capital deployment, analysts at Goldman said.

While Citigroup's capital ratios are amongst the strongest in the industry, capital deployment most likely will not occur until 2012, the brokerage said.

However, analysts said they liked the stock as a long-term story: "We continue to like the Citigroup story over the medium to longer term given its exposure to emerging markets, continued book value growth, potential excess capital position and valuation relative to peers."

In October, Goldman had said Citigroup faced limited loan repurchase risk compared with its peers, as its private label mortgage-backed-securities exposure was relatively smaller and added it to its conviction buy list.

The brokerage upgraded Wells Fargo & Co to "buy" from "neutral" and said the recent sell-off, given the speculation around the departure of its chief financial officer, presents an attractive entry point.

In early February, the San Francisco-based bank had said CFO Howard Atkins, 60, will retire in August after an unpaid leave of absence.

Analysts also expect Wells Fargo to quadruple dividend to $0.20 a share within the next few weeks, and see a possibility for additional deployment through a share buyback program.

Wells Fargo has the most consistent core pre-provision operating profit trends, which should continue into 2011 and 2012, analysts wrote in a note to clients and raised their price target on the stock to $38 from $36.

Shares of Citigroup were trading nearly flat at $4.71 in morning trade on the New York Stock Exchange. Those of Wells Fargo were up 4 percent at $32.65 on the same exchange.

(Reporting by Sweta Singh in Bangalore; Editing by Joyjeet Das)