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Legendary fund managers or gurus such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, are well-known for their savvy in picking winning stocks year after year. Generally, their investment horizon and holding periods stretch over many quarters and years, sometimes even decades.

In this article, we examine the money center banks that they are most bullish and bearish about based on our research of their latest available Q3 institutional 13-F filings. These money center banks are among the largest financial institutions that are usually located in major economic centers such as London, Hong Kong, Tokyo and New York. They typically do not borrow from or lend to consumers, and generally, the larger part of their borrowing and lending activities are with governments, large corporations and regular banks. Their reach is typically beyond a particular state or region of the country, and very often they have international operations. These money center banks, as represented by the KBW Bank Index ($BKX), are on average down 24.6% year-to-date, compared to the less than 2% decline in the broader markets as represented by the S&P 500 index ($SPX), due to play of the European Sovereign debt crisis in the U.S. markets.

Taken together, these guru managers are bearish on the group, cutting $639 million in Q3 from their prior $21.07 billion prior quarter holdings in the group. They are also severely under-weight the group by a factor of 0.7 (for more general information on these guru funds, please see the end of the article).

The following are the money center banks that guru fund managers are bullish about, and that are trading at a discount to their peers in the group (see Table):

Wells Fargo & Company (WFC): WFC is a diversified financial services holding company with 9,000 offices primarily in the U.S., and provides retail, commercial and corporate banking services. Guru funds hold their highest position in the group in WFC, at $12.30 billion, including the addition of a net $721 million in Q3. The top buyers were Maverick Capital ($327 million) and Berkshire Hathaway ($251 million), and the top holders are Berkshire Hathaway ($10.03 billion) and Oakmark Funds/ Harris Associates ($774 million).

WFC trades at a discount 8-9 forward P/E, and at 1.1 P/B, compared to averages of 9.6 and 0.7 for the major regional banks group. Earnings growth at WFC are expected to be among the strongest in the money center banking group, with analysts projecting that earnings will rise at 19.7% compounded growth rate from $2.26 in 2010 to $3.23 in 2012.

Bank of New York Mellon Corp. (BK): BK is a financial services company offering asset management, wealth management, asset servicing, issuer servicing, clearing services, and treasury services worldwide in 35 countries. Guru funds added a net $260 million in Q3 to their $1.57 billion prior quarter position. The top buyers were Southeastern Asset Management ($128 million), Yacktman Fund ($85 million) and First Eagle Investment Management ($69 million), and the top holder is by far Southeastern Asset Management ($819 million). BK trades at a discount 8-9 forward P/E and 0.7 P/B compared to averages of 9.6 and 0.7 for the major regional banks group, while earnings are projected to fall from $2.51 in 2010 to $2.34 in 2012.

Banco Santander SA (STD): STD is a global holding company for Banco Santander and other banks providing a wide range of banking and financial products via operating over 14,000 branches in Europe, Latin America, U.K. and U.S. Guru funds added a net $3 million in Q3, and the top holder is Fisher Asset Management ($216 million). STD trades at a discount 6-7 forward P/E and 0.7 P/B compared to averages of 8.3 and 1.8 for its peers in the foreign banks group.

The following are the money center banks that guru fund managers are most bearish about, based on their trading activity in Q3 (see Table):

Bank of America (BAC): BAC is a global financial services company providing banking and financial services to individuals, small- and middle-market businesses, corporations, and governments primarily in the U.S., and also internationally in over 40 foreign countries. Guru funds cut a net $218 million in Q3 from their $1.07 billion prior quarter position, and the top sellers were Eton Park Capital Management ($115 million), Kingdon Capital Management ($63 million) and Appaloosa Management ($55 million).

BAC currently trades near historic lows-- at prices it traded at in the late 80s and early 90s-- at a discount 5-6 forward P/E and 0.3 P/B, compared to averages of 9.6 and 0.7 for the major regional banks group. However, earnings are expected to be down strongly this year from 86c in 2010 (after taking out non-recurring items), before rebounding back to 96c in 2012.

Citigroup Inc. (C): Citigroup is a global financial services company providing consumers, corporations, governments and institutions with a range of financial products and services, including banking, investment, insurance and credit card and other services in more than 160 countries. Guru funds cut a net $138 million in Q3, and the top sellers were Appaloosa Management ($125 million), Lone Pine Capital ($103 million), Maverick Capital ($101 million) and York Capital Management ($81 million).

Citigroup currently trades at historic lows-- at prices it last traded at in the late 80s and early 90s-- at 6 forward P/E and 0.5 P/B, compared to averages of 9.6 and 0.7 for the major regional banks group. Earnings are in strong recovery mode, projected to rise at strong double digit (10.1%) growth rates from $3.60 in 2010 to $4.36 in 2012, and the stock looks to outperform on a relative basis to the rest of the group.

JP Morgan Chase & Co. (JPM): JPM is a global financial company providing private, commercial, and investment banking and treasury services in over 60 countries. This was the strongest sell by guru funds in Q3, both in absolute and relative terms, as together they cut a net $676 million from their $2.05 billion prior quarter position. The top sellers were Viking Global Investors ($319 million), Eton Park Capital Management ($201 million) and Maverick Capital ($127 million). JPM trades at a discount 7 forward P/E and 0.7 P/B compared to averages of 9.6 and 0.7 for the major regional banks group.

Morgan Stanley (MS): MS provides financial products and services to corporations, governments, institutions and individuals worldwide. It operates in three segments: Institutional Securities, Global Wealth Management Group, and Asset Management.

Guru funds cut a net $65 million in Q3 from their $561 million prior quarter position, and the top sellers were Fairholme Capital Management ($183 million) and Viking Global Investors ($93 million). MS earnings have been falling since the 2008-09 crisis from $8.17 in 2007 to a loss of 10c in 2009 and then rebounding to $1.74 last year.

Other money center banks that guru funds were active in Q3 include Goldman Sachs Group Inc. (GS), in which they cut $527 million; and Mitsubishi UFJ Financial Group (MTU), a holding company for the Bank of Tokyo-Mitsubishi and UFJ Bank, in which they added $5 million.

Table

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Note: The companies selected to be included in both the Top Buys and Sells and Top Holdings categories in the Table were picked on both an absolute basis, i.e. the highest dollar amounts of buys and/or sells, as well as those amounts relative to their market-cap. That way, the list is not biased towards the largest companies in the group.

General Methodology and Background Information: The latest available institutional 13-F filings of over 60+ legendary or guru hedge fund and mutual fund managers, such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, were analyzed to determine their capital allocation from among 50+ different industry groupings, and to determine their favorite picks and pans in each group. The hedge fund and mutual fund managers included in this select group include only high profile names who, by virtue of their long-term market-beating returns, have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 60-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles that can be accessed from our author page.

These legendary or guru fund managers number less than one percent of all funds, and yet, they control almost ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence, or even go as far as constructing a model diversified portfolio based on the guru funds best picks.

This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.


Source: Top Money Center Bank Value Buys And Sells By Legendary Fund Managers