This has been a terrible year for financial institutions. However, Wells Fargo (NYSE: WFC) has been able to make it through the obstacle course better than most.

The stock has been up and down with the market but the scandals and large write-downs that have tanked other companies have not been a part of the Wells story.

What has me wondering about Wells today is the prospectus I received from the company to purchase shares at $27 each. The offer is for 407,500,000 shares, far more than I could swallow at a cost in excess of $11 billion -- I have never seen that kind of money!

I'm sure they just figured I might take at least a few shares off their hands, and I have in the open market. If memory serves me correctly, this offering was announced about six weeks ago. The strange thing is that this came to me on a day when the stock closed at a price of $21 and change. Who pays $27 for a $21 stock?

Citigroup (NYSE: C) got a bailout from the government, but is the deal big enough to save Citi? This deal sounds like an interim solution rather than a permanent one. That's because after losing $20 billion in the last year, Citi has $2 trillion in on-balance sheet assets; another $1.23 trillion in off-balance sheet assets; and $36.8 trillion in derivatives. It is likely that the losses from these financial WMDs could exceed the amount Citi got from the government.

What does Citi get? Under the terms of the deal, Citi gets $20 billion in cash from the government (on top of the $25 billion it already received); Citi must cover the first $29 billion in losses of a $306 billion pool of assets -- the government picks up 90% of the remaining losses with Citi covering the other 10% from its mortgage-related assets; and Vikram Pandit gets to keep his job. The Treasury Department will use TARP to cover the first $5 billion of losses; the FDIC will take on the next $10 billion; and the Fed will assume any additional losses.

What does the U.S. receive? The U.S. gets $27 billion in preferred stock yielding an 8% interest rate. And that preferred stock comes with warrants to buy 254 million shares at $10.61 each. Citi must also pay no more than a penny a share dividend for three years -- down from 16 cents recently. The U.S. also negotiated executive compensation restrictions.

Wells Fargo (NYSE: WFC) is looking like a winner. Although its net income fell 24% to $1.64 billion; its 49 cents a share beat what analysts expected by 6 cents. And the better news is that Wells' competitive position is improving in this down market. July's failure of IndyMac Bancorp and September's Washington Mutual collapse let Wells Fargo gain deposits and borrowers.

Its revenues grew, but so did its credit losses. Wells Fargo's revenues rose 5% to $10.38 billion and it increased its allowance for credit reserves by an additional $500 million to $8 billion. Since the government decided to invest $250 billion in bank capital, the world will be split between winners and losers. Wells, which got $25 billion of that, will benefit as depositors and borrowers flee the firms that did not get enough of our money.

Its third quarter performance suggests that it will be among the winner's circle that will gain market share.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Wells Fargo stock.

No sooner did I post about Washington Mutual (NYSE: WM) last Friday (Chasing Value: Are you watching WaMu?) and buy it, I was undercut by the announcement of a change at the top.

The news just two days later read: Washington Mutual Will Name Meridian Capital's Alan Fishman CEO, WSJ Says.

I have made some bad picks and had some bad timing but this must be the biggest blunder so far.

This morning I received the following comment to last Friday's post:

• Mike said; Ya, Wamu... Great stock. Ha Ha Ha Ha Ha Ha Ha Ha Ha Ha

So I cannot hide from the truth and while their are brighter stock pickers on the Web then I, at least I can try to maintain the highest level of integrity. It is not so much that my commentary last Friday was unfounded or untrue, but that it appears from Wall Streets perspective to be another case of Washington Mutual doing 'too little too late'. That clearly is also the opinion of the WaMu Board because the ouster of WaMu CEO Kerry Killinger is part of that story.

Mr. Killinger was apparently very quick to promote questionable lending practices and very slow to admit his blunders and take corrective action. While the bank may have many positive attributes, if it does not have the cash to survive the current industry and internal difficulties then as many think it will not survive in it's current form. I hope not to make the same mistake and that is part of why I feel it is important to admit my errors responsibly and to also provide readers a forum to express their thoughts.

This morning there is plenty of banter about the company searching for a buyer, another idea Killinger resisted earlier in the year. Now whatever happens he will not be a part of the decision.

Last Friday WaMu closed at $4.27. It is trading $2.14, down $0.18 as of 11:55 AM EDT.

FINAL UPDATE: closed today at $2.83, up $0.51 or 21.98% -- go figure?

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WM.

"Recent valuations in financial stocks suggest either 'the world is coming to an end' or there are some great values," says Gregory Dorsey.

Here, the contributing editor to the top-notch Leeb's Income Performance Letter takes a look at one such "bargain" in the sector: U.S. Bancorp (NYSE: USB).

"So far, the financial sector has written off more than $300 million in assets. By some accounts the damage will rise to $1 trillion or more before all is said and done.

"The selloff, which at its nadir was marked by a 55% year-over-year decline in the KBW Index, pushed the constituent members down to a collective 0.64 times book value and a dividend yield of 9%.

"At those levels, either the world is coming to an end or there are tremendous bargains for investors with the courage of their convictions. Looking hard at the data, we can only conclude the latter is the case, provided you're careful with your investment choices.

It was just a matter of time. People with poor credit have been defaulting on mortgage payment in large numbers for more than a year. Now the problem has moved to homeowners with reasonably good credit.

According to The New York Times, in April "delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent" from a year earlier.

The problem is going to get much, much worse. Many mortgages held by people with good credit have interest rates resetting at higher prices. The trouble is deeper than that. Higher energy costs and falling employments have a leveraging effect on the overall ability of many homeowners to keep up with their payments.

All of this means that write-downs of asset by big banks and brokerage firms may only be in early stages. The IMF has estimated that total write-offs among banks due to mortgage problems will hit $1 trillion. By most estimates only $400 million of that has shown up in earnings reports.

For investors in bank and brokerage stocks, the implications are that these firms will lose more money and have to raise more capital to bolster their reserves. That means more dilution.

Bank stocks have much further to fall.

Douglas A. McIntyre is an editor at 247wallst.com.

"The financial sector got a boost after our Wells Fargo (NYSE: WFC), a buy recommendation in our model income portfolio, reported better-than-expected earnings," notes Jack Adamo.

The editor of Insiders Plus, explains, " While Wells, like virtually every other bank, is dragging its heels a bit on recognizing losses on bad mortgages, there were elements of the report that were unquestionably great.

"In its latest quarterly report, Wells Fargo reported:

• Revenues were up 16% year-over-year.
• Average loans were up 18% year-over-year.
• Net interest margin was 4.92%, up 23 basis points from Q1
• Net interest income increased 21% year-over-year.

"The fact that Wells is one of the few banks that is still well-capitalized enough to write loans was a large contributor to its increase in revenues.

CNNMoney reports that Bank of America (NYSE: BAC) reports that its earnings fell 41% in the second quarter to 72 cents a share. In response, its stock is up 11% in pre-market. Why the celebration? Analysts expected Bank of America's earnings to tumble 48% to 53 cents, so it beat those expectations by 19 cents a share.

According to CNNMoney. Bank of America's revenue was up 14.6% to $20.32 billion during the quarter due to "wider net interest margins, loan growth and higher income from mortgage banking and the company's investment and brokerage services." Thomson Reuters surveyed analysts who expected revenue of $18.37 billion -- 10% lower than its actual results.

I am wondering whether some investors will think we have bottomed out of the banking crisis. I think it's too early to break out the champagne, but the coming rally could be a good time for nervous investors to bail out. That's because credit losses could keep rising -- Bank of America added $5.8 billion to reserves for bad loans and its Countrywide purchase could boost those reserves far more in coming quarters.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Those pundits who think guru investor Warren Buffett's time has come and his magic faded away are bolstered by a Bloomberg report that says shares in Berkshire Hathaway (NYSE: BRK.A) slumped some 19% since mid-December. Buffett has been hurt by large investments in both insurance and banks, industries that have suffered tremendously.

Lest you think this short-term lack of performance has swayed investors into looking elsewhere to park their money, many investors are looking at the fall in Berkshire stock as a buying opportunity.

According to Bloomberg, Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management said he'd "put a new client in Berkshire right now. [...] It's probably the highest-quality collection of individual companies that's ever been assembled. Long slides are not in the Berkshire Hathaway lexicon."

With the stock market drop, many contrarian investors think that stocks have hit bottom and are very cheap. Buffett, who is sitting on such a large cash position, may be able to take large stakes in solidly profitable yet beaten up companies.

If he decides to put his cash to work, he has the ability to get deals that happen only once or twice in a lifetime. He may end up providing returns that make his previous track record look just average. For the Buffett investors, the best may is yet come.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/1/08.

Some analysts thought that once banks moved though their bad bet on subprime paper, they might start to see improvements in their earnings. Not so fast. Plain old loans for houses and condos are going bad so fast that lenders are about to get hit again on the bottom line.

The Wall Street Journal points out in one of it top stories that "Federal regulators warned Thursday that banking-industry turmoil would continue as financial institutions come to terms with piles of bad loans they made to finance the construction of homes and condominiums."

Many investors may say that the information is obvious, and that it was expected that falling real-estate prices would hurt banks. But the real victims may be bank shareholders. As large lenders take more losses on their portfolios, they will have to raise more capital and further dilute shareholders. Banking stocks which are down two-thirds from their highs could drop even further.

Now that banks are selling off these large loans, the quarterly reports for companies like Wachovia (NYSE:WB) and Wells Fargo (NYSE:WFC) are about to get hammered again. Wachovia trades at below $22, down from a 52-week high of more than $54. Wells Fargo has fallen from a 52-week high of almost $38 to $27. Regional banks like National City (NYSE:NCC) have had it worse. It shares have fallen from a one-year high of $34.62 to $5.25.

Selling in those stocks in not over. Not even close.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

Wachovia Corp. (NYSE: WB) Chief Executive Kennedy Thompson was living on borrowed time. The company, though, had a funny way of showing it.

In 2007, Thompson was not awarded cash incentives or performance-based stock to Thompson because things were going poorly. Or were they?

"The Compensation Committee considered that while 2007 performance did not meet expectations for reasons noted above, under Mr. Thompson's leadership, earnings per share growth and Wachovia's tangible return on equity have been at or above the median of its peer group for 2007 and for the 3- and 5-year periods ending December 31, 2007," the company said in its latest proxy statement.

The company's board showed its displeasure and granted him premium priced stock options valued at $8.2 million. His total compensation was more than $21 million. Thompson did not have an employment agreement with Charlotte-based Wachovia and therefore would "only" be eligible for a severance of $1.45 million based on his years of service as of December 31. But don't shed a tear for Thompson.

The model portfolio of Insiders Plus gains 48% last year; here, editor Jack Adamo reviews two of his portfolio holdings -- both bank stocks being accumulated by Warren Buffett's Berkshire Hathaway.

"U.S. Bancorp (NYSE: USB) reported a slight decrease in Q1 earnings of 62¢ per share versus 63¢ last year; the shares rose 2.8% the next day. Compared to the disastrous results of its peers, this small decline in earnings was a home run.

"That's a testament to the company's savvy managers. USB steered clear of the toxic problems that choked most banks. Only 2.7% of its loans are subprime.

"Warren Buffett's Berkshire-Hathaway continues to buy the stock steadily. Recent SEC filings show that in the fourth quarter of 2007 Berkshire increased its share of the Minneapolis-based bank by 3 million shares to a total of 75 million.

"This represents 4.4% of its shares outstanding, and up tremendously from its stake of 23 million shares just a few years ago. The Wizard of Omaha knows what he likes and why he likes it.

"Meanwhile, Wells Fargo & Company (NYSE: WFC) reported Q1 earnings of 60¢ per share down 9% year-over-year, but up 46% from the December quarter. Like USB, Fargo shares continue to be accumulated at Berkshire Hathaway.

"The stock is a solid long-term buy, with good prospects of steadily raising its 4.2% dividend. It has capital appreciation potential to boot, especially after the housing hangover abates."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.

Charles Peabody, a famous banking analyst, has been down on the prospects of financial companies for a number of quarters. He now sees some of the stocks in the sector as good buys.

Peapody's change of heart may be coming at the wrong time. A number of observers believe that it is healthy that firms like Citigroup (NYSE:C) are taking huge write-offs. But, if the housing and credit markets keep falling, losses could still balloon.

According to Reuters, Peabody, a widely-followed expert says "Bank shares could rise 35 to 45 percent on average from their first-quarter lows, amid signs the housing market might be bottoming out."

Peabody's thinking is based on a premise that is probably flawed. He sees the recession as making a bottom now. Any near-term recovery should indeed aid bank stocks.

With energy and commodity prices rising, consumers in trouble with debt, unemployment moving higher, and a weak dollar, it is hard to see how Peabody draws his conclustions.

Douglas A. McIntyre is an editor at 247wallst.com.

The Associated Press reports that Bank of America (NYSE: BAC) and Wachovia Corp. (NYSE: WB) both banked badly in the fourth quarter -- seeing profits plunge 95% and 98% -- respectively.

Here're are the lowlights:

• Bank of America: Net income fell to $268 million, or 5 cents per share, in the fourth quarter from $5.26 billion, or $1.16 per share in Q4 2006.
• Wachovia: Net income fell to $51 million, or 3 cents per share, from $2.3 billion, or $1.20 per share, in Q4 2006.

The culprit? Bloomberg News blames home loan write-downs for Wachovia's bad numbers. Wachovia's provision for credit losses rose to $1.5 billion from $408 million on September 30. And Bloomberg News fingers $5.28 billion in mortgage-related write-down as reason for Bank of America's poor results. Some good news for Bank of America: it had a pretax gain of $2 billion from its holding in Visa Inc., the credit-card network that's planned an initial public offering for later this quarter. We'll see.

Bank of America is down 5.5% in pre-market while Wachovia is a mere 3.6% lower.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits . He has no financial interest in the securities mentioned.

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects Citigroup (NYSE: C) to lose $0.97 when it announces its fourth-quarter results on January 15th. That's bad compared to the same period in 2006, when it earned $0.70.

Citigroup is a New York-based bank whose segments include Global Consumer Group, Corporate and Investment Banking (CIB), Global Wealth Management and Alternative Investments (AI). In the last year, its revenues were $117.9 billion and its net income totaled $18.5 billion. Its stock has fallen 48% in the last year, and it now trades at a P/E of 7.5.

Citigroup has a record of beating estimates. In the second quarter of 2007, it beat the estimate by 8.8% and in the third quarter it beat by 6.8%. My hunch is that Citigroup will lose more than expected.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares.