Wells Fargo & Co., PNC Financial Services Group Inc. and several other large regional banking companies face bigger credit strains than their stock prices would suggest, UBS AG said Thursday as it began coverage of 10 large regional banks with "sell" or "neutral" ratings.

The note of caution on Wells Fargo — from an ex-Merrill Lynch analyst, Heather Wolf, who is known for having predicted trouble at Huntington Bancshares Inc., Zions Bancorp. and elsewhere in 2007 and 2008 — contrasts with some of Wall Street's more recent favorable commentary.

For example, Goldman Sachs Group Inc. singled out Wells and Capital One Financial Corp. for upgrades Monday as it raised its rating on the large-bank sector to "attractive."

This upgrading, which came with caveats for most of the regional-banking sector, came after Wells Fargo upgrades since August by Bernstein Research, Miller Tabak & Co. and NAB Research.

Both Wells and PNC face "meaningful" credit problems in the near term that make them likely to undershoot Wall Street's 2010 and 2011 earnings forecasts, UBS said.

UBS set a $20 price target for Wells Fargo and $37 for PNC, or about 30% and 20%, respectively, below their recent share prices.

Wells Fargo closed down 0.72% Thursday, at $29.05, and PNC closed down 2.94%, at $44.29.

UBS also estimated 2010 earnings for both banking companies well below the Street's averages.

Not all regional banks' balance sheets are as challenged, according to UBS, which cited BB&T Corp., M&T Bank Corp. and U.S. Bancorp among those with stronger outlooks. But the stocks of these banks already reflect that strength, UBS said as it placed a "sell" rating on BB&T and "neutral" ratings on the others.

UBS also gave "sell" ratings to Comerica Inc., SunTrust Banks Inc. and Fifth Third Bancorp and "neutral" ratings to Regions Financial Corp. and KeyCorp.

PNC does not comment on analyst reports, a company spokesman said.

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