At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Take it to the bank?
It seems American bankers have as little compunction as gout-afflicted ogres about biting the heads off rivals when the time is ripe.

Citing a too-optimistic stock price, investment banker Morgan Keegan yesterday downgraded shares of SunTrust (NYSE: STI), a rival to MK's own parent company, Regions Financial. The shares have run up 20% since their lows of late August, after all. So while MK insists that it still respects "the long term franchise value of SunTrust," it appears that at 32 times next year's earnings, SunTrust has finally become too rich for its taste.

That's well and good. Morgan Keegan is certainly entitled to its opinion; it now rates SunTrust "market perform." But seriously, Fools -- should you be taking dietary advice from this ogre, er, banker?

Let's go to the tape
Despite being in the banking business itself, Morgan Keegan has shown itself to be anything but a savvy banking-stock picker. Reviewing its list of active recommendations in the commercial banking sector, we find MK just as likely to guess wrong ...



MK Says

CAPS Rating
(out of 5)

MK's Picks Lagging S&P by

BB&T (NYSE: BBT) Outperform *** 28 points
Synovus Financial (NYSE: SNV) Outperform *** 8 points
... as it is to guess right:



MK Says

CAPS Rating
(out of 5)

MK's Picks Beating S&P by

Huntington Bancshares (Nasdaq: HBAN)Outperform**46 points
Fifth Third Bancorp (Nasdaq: FITB)Outperform**45 points

That said, if you'll take careful note of the scores MK has racked up, it appears that the banker is at least attempting to hedge its bets, so that even if it winds up with an equal number of winners and losers, its winners win big, while its losers lose small. I think panning SunTrust is just the way to keep that trend rolling.

Consider: Unprofitable over the past year, and selling for 32 times the profits it might earn next year, SunTrust costs a pretty penny more than almost any major bank you can name. Wells Fargo, JPMorgan Chase, Citigroup (NYSE: C), Bank of America (NYSE: BAC) -- not a one of 'em will cost you more than nine times forward earnings at today's prices. Even better, two of these banks -- JPMorgan and Wells -- are already profitable today.

Foreclosure fears
But the news gets even worse for SunTrust. Yesterday, The Wall Street Journal published a list of banks that face the greatest exposure to the government's crackdown on home mortgage foreclosures. Guess which publicly traded bank has the sixth-biggest percentage of its "1-4 family" loans in foreclosure today?

That's right, Fools: SunTrust, with a 5.01% foreclosure rate. (Of the stocks named above, only megabanker JPMorgan has greater exposure, at 7.5%.) Perhaps for this reason, Morgan Keegan cited a second worry in addition to its concerns about SunTrust's valuation: "We are becoming increasingly concerned that ongoing issues surrounding mortgage foreclosures ... could not only remain a source of headline risk, but also potentially push out the timing for a return to normalized earnings as troubled asset disposition could get dragged out."

Translation: Unprofitable today, SunTrust might not earn the profits we hope to see it earn next year. Even if it did earn those profits, SunTrust would still trade for a P/E far in excess of what many bigger, better banks cost.

Foolish takeaway
To paraphrase the Bard: "Oh what a tangled web we weave, when first we ... buy an overpriced bank."

Between the foreclosure controversy now emerging, and the overvaluation concerns that (honestly) were always there for SunTrust, it's really no surprise that Morgan Keegan downgraded the stock yesterday. The surprise is that MK ever recommended buying SunTrust in the first place.

Fool contributor Rich Smith does not own shares of, nor is he short, any stock named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 641 out of more than 170,000 members. The Motley Fool has a disclosure policy.

The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.