With so much questionable lending by financial institutions coming to light, bank writedowns have become routine. So, too, have rights offerings, preferred stock sales, and all sorts of corporate hat-passing intended to shore up shoddy shareholders' equity. If we accept JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon's view that the financial crisis is far from over -- and he ought to know -- then this carnival ride will keep spinning until we're all green in the face.

I want no part of this mess, and I think breezy bottom-callers are in for a bruising. But even for the banking bears, it makes sense to start sniffing out the firms with fortress-like financial positions.

To this end, I ran an incredibly simple screen. Taking a page from Peter Lynch, who has called the equity-to-assets ratio the most fundamental measure of a bank's financial strength, I searched for banks listed on a major U.S. exchange with a market cap in excess of $2.5 billion and an E/A ratio in excess of 10%. That's it.

Amazingly, only 15 companies made the cut. Here are a few:

Company Name

Equity / Assets Ratio (%)

Hudson City Bancorp (Nasdaq: HCBK)


Huntington Bancshares


Marshall & Ilsley


PNC Financial Services Group (NYSE: PNC)


Regions Financial (NYSE: RF)


SunTrust Banks (NYSE: STI)


The Bank of New York Mellon (NYSE: BK)


Data provided by Capital IQ.

There's a tremendous amount of variety among these firms, but let's first talk about what they all have in common. The relatively high proportion of equity at each bank implies a restrained use of leverage. This translates to financial flexibility, whatever ugliness may lie ahead. This conservatism is crucial, because some of these companies have been reporting seriously crummy quarters. Take SunTrust, for example.

Hot-lanta's in Hot Water
SunTrust may be headquartered in Georgia, but its business is anything but peachy. Thanks to a windfall from the Visa (NYSE: V) IPO, first-quarter net income fell by only 44%. Non-performing loans as a percentage of total loans tripled, and loss reserves were ratcheted up nearly tenfold.

Now, I wouldn't say that management is blameless here, but it is important to note that Southeastern banks as a group are trading closer to book value than those of any major region. This part of the country is really getting creamed. SunTrust has stumbled along with its peers, but the firm has a good long-term record of profitability and shareholder value added. And based on E/A, it should come out OK.

Before turning to our CAPS community for additional insights, I want to dig into SunTrust's Tier 1 capital ratio, which is another useful metric to keep an eye on. This figure is used to satisfy regulators that a bank retains a solid core capital position, relative to risk-weighted assets. SunTrust's current ratio of 7.25% is within spitting distance of its desired target, and comfortably in excess of what regulators want to see. Still, it's not a knockout.

It turns out that this measure is actually understated. Buried within the firm's first-quarter earnings release is the following tidbit: SunTrust holds a large position in hometown hero Coca-Cola. As it stands, this equity value isn't recognizable as Tier 1, so the bank is working on a transaction that will unlock about $1 billion in Tier 1 value in the current financial quarter. Even for a behemoth like SunTrust, that's good for a nice upward adjustment to this critical ratio.

Our Motley Fool CAPS community isn't too stoked about two-star rated SunTrust. Among All-Stars, outperform calls exceed underperforms by less than 2:1, and we Fools tend to be an optimistic bunch.

Most of the sunny views on the stock were penned before the subprime scare really set in. Gtrinvestor, one of our savviest stock pickers, nearly a year ago perceived "a highly motivated management that either will turn the bank around and drive great success, or it will be bought out at a premium." He isn't the only CAPS member to have focused on the prospect of a takeover. That's another aspect to investing in well-capitalized banks -- they tend to attract suitors.

More negative comments tend to focus on SunTrust's exposure to Florida real estate and other risky assets. I can't blame these players for keeping their distance, and like them, I have no idea how much farther this stock could fall. Focusing too much on the stock, though, is a recipe for stupidity. The business arguably has significant franchise value; combined with the firm's attractive capital structure, it's earned SunTrust a place on my watchlist.

More analysis to bank on:

JPMorgan Chase is a Motley Fool Income Investor pick. Coca-Cola is an Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. His CAPS profile is here. The Motley Fool has a disclosure policy.