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Wells Fargo Is the Cheapest, Safest Bank

NEW YORK ( TheStreet) -- Warren Buffett once described derivatives as financial weapons of mass destruction. I have wondered over his disdain for these classes of "fiscal engineering." However, if arguably the world's greatest investor holds these complicated financial instruments in contempt, everyday common investors should be wary.

For most people, the term "financial engineering" means simply earning a check from a 40-hour week and investing part of it in successful stocks. But sometimes, through even basic investments, people become victims of fallout from these "weapons" indirectly, when they invest in companies exposed to high risk attributable to derivatives.

Financial Security

This topic came to the forefront last week when investors learned that JPMorgan (JPM - Get Report) suffered a $2 billion dollar loss in its synthetic credit portfolio since the end of the first quarter.

This announcement has forced investors to not only re-evaluate the state of our banking system, but from an investment perspective, it has also served to bring more scrutiny toward bank balance sheets in an effort to reassess risk and current valuations.

In my recent research one name that seems to standout from the rest is banking giant Wells Fargo (WFC - Get Report) with U.S. Bancorp (USB - Get Report) coming in at a close second. Without adding additional "spin" Wells is now the safest bank on Wall Street and in my opinion it is now trading at a significant discount if for no other reason than for the peace of mind if offers in light of JPMorgan's news.

It is hard to say at this point if a banking franchise exists that exceeds the quality of management and credibility offered by Wells Fargo -- with one of the attractive qualities being that (unlike several of its peers) it is highly transparent and its books are easy to understand.

'Better Names to Own' Than JPMorgan: FBR >>

Furthermore, in a thorough appraisal of its fundamentals, investors will discover that not only is the bank remarkably unburdened by the associated risks stemming from a reliance on derivatives but, unlike names such as Goldman Sachs (GS - Get Report) or to a lesser extent Citigroup (C - Get Report), it is also divested from investment banking, prop trading and, better still, the adversities of Europe.
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C $46.73 0.00%
GS $164.50 0.13%
JPM $63.60 0.00%
USB $43.13 0.00%
WFC $50.41 0.00%


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