Superstar Investors Name the Top Banking Stock

With the banking brouhaha now a week old, and Morgan Stanley (NYSE: MS  ) apparently chasing Wachovia (NYSE: WB  ) , it's time to ask: Which bank can survive the fallout and deliver returns to investors? For the answer, we turn to our 115,000-strong Motley Fool CAPS community. Here, in order, are their five favorite banking stocks right now:

Top Banking Stocks	Recent Price	CAPS Stars (out of 5)	1-Year Return
US Bancorp (NYSE: USB  )	$35.00	***	11.4%
BNP Paribas	$47.26	***	(8.9%)
Royal Bank of Scotland (NYSE: RBS  )	$3.94	***	(60.1%)
Bank of America (NYSE: BAC  )	$34.15	***	(28.5%)
Popular (Nasdaq: BPOP  )	$9.95	***	(13.7%)

Sources: CAPS, Yahoo! Finance.

Salute US Bancorp
You've heard us say over and over that past performance is no indicator of future success. But it's also all we have. In a time of economic crisis that has seen many banks fail and most others waver, I think it's telling that Income Investor pick US Bancorp is up over the past year.

That tells me two things. One, Warren Buffett is still a super-genius. Two, US Bancorp's commitment to sustainable lending has created a margin of safety that many peers lack. Here's how our CAPS community rates USB:

Metric	US Bancorp
CAPS stars (5 max)	****
Total ratings	1,574
Bullish ratings	1,449
Percent Bulls	92.0%
Bearish ratings	125
Percent Bears	8.0%
Bullish pitches	275
Bearish pitches	18

Data current as of Sept. 22, 2008.

CAPS investor Buffantics crystallized the bearish view earlier this month. Quoting:

This stock is propped up by Buffanatics. So what if Warren Buffet is buying? What does he know about mortgage lending? [US Bancorp] was doing 100% financing with a 580 credit score! They did no equity refinances! They did stated, 100%! They are probably sweating their next earnings report right now. Hello people....they TRIPLED their loan losses in 1 quarter, imagine what the next quarter is going to look like. Go ahead though, keep piling into this stock. I love it! I just keep buying more put options waiting for October! Conservative lender my rear.

All-Star TMFMattyA expressed a very different view in the top bull pitch, which he posted in January. Quoting:

[US Bancorp] in my view is the safest of the major U.S. banks for playing a potential turnaround in the financial/banking industry in 2008 and beyond. Berkshire Hathaway's investment helps mightily with the thesis, but so does the 6 percent dividend yield, and the relatively negligent exposure to subprime (at least in relation to many of its peers). [US Bancorp] won't leap and bound, but it will be market-beater.

I'll add that USB's rising-but-still-low Texas Ratio -- 100% or more can indicate pending insolvency -- looks good, which tells me that Buffett is probably right:

Metrics (in mil)	TTM*	2007	2006	2005
90-day past due loans	$687	$584	$349	$253
Non-performing loans	$971	$557	$470	$544
Tangible book value	$9,164	$9,356	$9,432	$10,207
Allowance for loan losses	$2,518	$2,058	$2,022	$2,041
TEXAS RATIO	14.2%	9.9%	7.2%	6.5%

Source: Capital IQ, a division of Standard & Poor's.
*Trailing 12 months.

But that's my take. I'm more interested to know what you think. Would you buy US Bancorp at today's prices? What about Wells Fargo (NYSE: WFC  ) , another Buffett bank? Let us know by signing up for CAPS today. It's 100% free to participate.

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