The Top Six U.S. Banks, Performance Since 2010 Shows an interesting picture (NYSE: BAC) (NYSE: PNC) (NYSE: C) (NYSE: WFC) (NYSE: JPM) (NYSE: USB)

NEW YORK - Well some pundits move around from bank to bank like Jim Cramer, other like Warren Buffett and this article writer stick to their guns. Buffett known as the Oracle of Omaha for his uncanny ability to predict the future of stocks. Buffett doesn't actually predict the stock but finds companies which are cheap, he lets other people do the work for him. Buffett owns U.S. Bancorp and Wells Fargo. The writer of this article believes in PNC as the best U.S. Bank in terms of value and bought it on August 26, 2010. The writer only owns 1 U.S. Bank. Jim Cramer has backed BAC for the last three years as the best U.S. Bank. However he has also owned every other U.S. Bank for short period of times. Lets take a look at the performance of the top six U.S. Banks since 2007 and since August 26, 2010 and compare Buffett, Cramer and myself. Capital One Financial though it proclaims it is the fifth largest bank, it is really not. It has a lower loan portfolio and we are not just looking at assets. These are the top six pure banks.

Since the mistake by S&P when the U.S. was downgraded on August 5th, PNC is down 4%, USB is down 0.5%, Wells is down 3.12%, BAC is down 26%, Citi is down 17% and JPM is down 17.5%.

Year to date: PNC is down 19%, USB is down 12.5%, Wells is down 21%, BAC is down 55%, Citi is down 41% and JPM is down 27%.

In the last year, PNC is down 4.5%, USB is up 4.75%, Wells is up 3.56%, BAC is down 50%, Citi is down 29% and JPM is down 16.5%.

Lastly since August 26, 2010 the day the writer purchased PNC. PNC is down 3.3%, Wells is up 2.7%, USB is up 6%, BAC is down 53%, Citi is down 25% and JPM is down 16%.

Though one year is a short time period to judge. Warren still wins. In fact in the last 10 years, Wells and USB are the only banks to be up. BAC is down 78%, JPM is down 7%, Citi is down 93%, PNC is down 12%: while Wells and USB are up over 20%.

These banks are not just exclusive to the top six banks. Wells and USB have performed every other U.S. Bank, and PNC is a close third. However while WFC and USB still are great banks, PNC is still getting to large of a discount to these banks. Wells trades at 1.37 to Tangible Common Equity (TCE) with an ROTE (Return on Tangible Equity) of around 17%., USB trades at 2.1 to TCE with an amazing ROTE in the current environment of 22%. Before the recession they had ROTE's of 46% but this will be impossible in the future with higher capital requirements. PNC is trading at 1.1 to tangible book value with an ROTE of 16.5%.

PNC also has the least amount of leverage among the institutions meanings a higher ROTE is inherently harder to achieve. This is because if you own a $1000 bond earning 5% you expect to earn 50 on that $1000. But if you borrow $1000 at 0% (IE a depositor a simplistic example) and have $1000 you put in you expect to earn $100 now on that $1000 of capital or 10%. Leverage amplifies returns and usually risk. So PNC's returns are going to be inherently lower because of lower leverage. USB has leverage of 15 to 1, Wells has leverage of 14 to 1 and PNC has leverage of 11 to 1. PNC will increase its leverage with its recent purchase of RBC. They expect to add $400 million of earnings a year with their essentially free purchase of RBC in the U.S. This will likely increase their return on tangible equity to above Wells yet it trades at a big discount to Wells. A simple equalization to the price of Wells which makes no sense (That is the current Wells Fargo price makes no sense as does the PNC one) puts PNC at $60 a share. Even more perplexing is the value of Canadian Banks premiums to U.S. Banks but that can be saved for another discussion. I know some people will think its absurd that Wells Fargo doesn't deserve a premium to any U.S. bank considering its performance but there are three reasons why Wells Fargo is no longer the crown jewel. (1) Its large size limits its ability to expand. (2) A SIFI buffer if it happens even though incredibly dumb will affect Wells more than smaller USB and PNC. (3) The company's CFO suddenly retired. This was a confusing set of events that still has not been explained. Canadian Banks have lower ROTE's than WFC, USB and PNC and have more leverage but trade at massive premiums to U.S. Banks. All of this will have to change going forward.

Wells also has more risk to a SIFI buffer than PNC has. PNC has more room for growth. Despite this Wells is still extremely cheap. The point is simply that PNC is much cheaper and while Buffett has won this battle, I think PNC will outperform his stocks in the long run. Cramer has come in dead last by a long shot. Not many banks have performed worse than BAC in the last year.

Finally one peculiar stock is BB&T, the 11th largest bank in the country trading at 1.52 times tangible book value despite earning 12.6% on ROTE. Even if we adjust for BB&T's 2007 income we get an ROTE of 17.5%. BB&T is still the most overvalued of the strong banks in the U.S. It has no right to get the premium status it gets when its a much worse bank than PNC, USB and Wells.