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:
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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 )
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$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
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1,574
|
|
Bullish ratings
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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
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$2,518
|
$2,058
|
$2,022
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$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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