By Dan Freed

Bank of America (BAC) has more room to cut costs than Citigroup (C), according to a report published Thursday by Atlantic Equities analyst Richard Staite, who recommends both stocks but prefers Bank of America.

Citigroup dominated Citigroup dominated headlines Wednesday with its 11,000 layoffs and $1.1 billion in projected annual cost savings, but while its shares gained 6.33%, not far behind was Bank of America, which saw shares rise 5.66% in apparent sympathy.

"Traders want to own the 'beta' names," wrote portfolio manager Tom Brown, who runs hedge fund Second Curve Capital, in an email message.

Bank of America's gains on Wednesday took the shares past the $10 mark for the first time in more than a year, and Staite sees plenty more gains ahead.

"Citi's cost efficiency ratio of 60% (ex one offs) is already at a reasonable level and we doubt it will ever go much below 58%. Therefore we are not surprised that the new CEO could only come up with $1.1 billion in cost savings which equates to about 2% of the cost base," Staite writes.

By contrast, Bank of America's ratio is at 67%, and he believes it "could ultimately normalise at below 55%," because the bank "is more focused in large markets giving it great room for economies of scale."

Staite projects $8 billion Bank of America's cost savings will come from the eventual wind down of Legacy Asset Servicing--the unit assigned to service problem mortgages created in the run up to the subprime crisis. The remaining $6-7 billion will come from elsewhere in the bank as part of a program dubbed "New BAC." Bank of America will have $65 billion in costs in 2012, excluding "one-time" items, Staite projects.

Staite's preference for Bank of America differs from analyst Mike Mayo of CLSA. Mayo expects another major round of cuts ahead of Citigroup's annual shareholder meeting in April, according to a report he published Wednesday. In an interview on Wednesday on CNBC, he said he prefers Citigroup because he believes new management is committed to taking the company in a new direction.

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