) -- For most of 2011, bank stock investors have asked themselves one question repeatedly as the European crisis deepened. Is this 2008 all over again?

While industry analysts and Wall Street chieftains have made passionate arguments about how the fundamentals of the U.S. banking system has significantly improved since the financial crisis by almost every metric, jittery investors have not been willing to stick around to find out if that is true.

Bank stocks have suffered their worst decline since 2008 as investors shoot first and ask questions later, with the

SPDR Financial Select Sector

(XLF) - Get Report

shedding nearly 25% year to date. The biggest banks have led the plunge, with the

KBW Bank Index

, a basket of 24 of the largest banks, declining 32% year-to-date.

Concerns over exposure to Europe, dismal capital market revenues, a harsher regulatory environment and an unprecedented downgrade of U.S. debt in August assailed the stocks of

Bank of America

(BAC) - Get Report


Morgan Stanley

(MS) - Get Report



(C) - Get Report

which have shed 60%, 47% and 43% respectively in 2011.

JPMorgan Chase

(JPM) - Get Report


Wells Fargo

(WFC) - Get Report

declined by a lesser extent, falling by 20% and 29% respectively.

Small-cap regional banks fared better, as did credit card companies and mortgage servicers.

All data is as of Nov. 29.

Bank stocks now trade at such deep discounts to historical valuations- many bluechip names trade below their book value- that

few sell-side analysts can bring themselves to say ⿿sell,⿝ despite the cloudy macroeconomic outlook.

>> Why Bank Stock Calls Bombed in 2008: Bove

They maintain that U.S. banks have improved capital levels and liquidity, have fewer problem loans on their books and can navigate a sluggish economic environment by focusing on cost-cutting.

But investor confidence in banks never fully returned in the aftermath of the 2008 crisis and negative headlines emanating out of Europe and the U.S. have not helped.

Investors remain nervous about banks "true" exposure to counterparties in Europe following the failure of

MF Global


. Banks have tried to improve their disclosure about their exposure to Europe, but investors question the effectiveness of the hedges they have in place and the quality of the disclosures have varied widely.

Rating agencies have downgraded the debt ratings of banks amid concerns over the sovereign debt crisis in Europe and America's own debt problems.

The anti-Wall Street rhetoric has grown louder with the occupy wall street movement, making it less likely that banks will be able to win their battle with Congress over regulations as we head into the Presidential elections.

Meanwhile, banks have also been unsuccessful so far in finding offsets for lost revenues, with their proposals to impose fees on debit card purchases backfiring.

Here are some of the biggest winners and losers in the financial sector year to date, starting with

the losers


6. Bank of America

Bank of America still gets to keep the title of the most hated bank on Wall Street, though for a while it had a close contest with


At the beginning of the year, when the stock was trading at $14, Bank of America was already pegged as the most vulnerable to mortgage putback risks. As it struggled to accurately estimate its likely mortgage-related losses, it became clear that

Bank of America was a ⿿class apart⿝ when it came to dealing with the mortgage mess .

But its precipitous decline began only in the second half of the year. In August, banks had the wind knocked off their sails when S&P unexpectedly downgraded the rating of U.S. debt. Soon after, Bank of America found itself facing a $10 billion lawsuit from


(AIG) - Get Report

over mortgage bonds sold during the crisis.

That was later followed by a lawsuit from the

FHFA that targeted Bank of America and 16 other banks .

At this point,

analysts began to lose confidence in their own mortgage loss estimates, as it was difficult to predict just how many repurchase claims remained unresolved and what would be the severity of those losses.

Meanwhile, the stock of BofA plunged to about a third of its book value, leading to calls that the bank should raise more capital.

And though CEO Brian Moynihan repeatedly said the bank did not need to raise capital, it has taken several steps in recent months to shore up its capital ratios, from

raising $5 billion from billionaire investor Warren Buffett, to selling almost its

entire stake in China Construction Bank , to raising $2.1 billion in common stock

in exchange for preferred stock and trust preferreds.


All through 2011, Citigroup has been essentially a risk-on, risk-off story, plunging the most when fear was high and rebounding every time concerns eased.

Citi's investors and employees were overpowered by a sense of Déjàvu as the

stock plunged to half its book value in the immediate aftermath of the debt downgrade.

CEO Vikram Pandit assured investors and employees that the bank was a fundamentally different company since 2008. "Although the decline is difficult to watch and naturally reminds all of us of what happened several years ago, there is little similarity between now and then in both drivers and implications," Pandit told senior managers in a voice mail, the transcript of which was obtained by the


. "Not only is it a fundamentally different time, but we are a fundamentally different company."

Analysts too have been eager to point out the differences between

Citigroup and Bank of America , highlighting its emerging market presence as an advantage and noting its relatively low exposure to mortgages in the U.S.

But despite its seemingly compelling value, the stock has been punished in 2011. Perhaps its 10- for- 1

reverse stock split in May did not help stabilize the stock contrary to management expectations.

Citi has had its share of negative headlines in 2011, many stemming from troubles in Asia and concerns over its vulnerability to an emerging market slowdown.

In the latest blow to the bank, a

federal judge rejected its $285 million settlement with the SEC over a mortgage-bond deal and set a trial date, ending what is seen by critics as a cozy arrangement between banks and the regulator.

Still, the outlook for the stock is not too bad.

Citi's dividend is expected to rocket 15-fold in 2012, by one analyst's estimate.

4. Morgan Stanley

Concerns over Morgan Stanley's exposure to Europe haunted the stock through most of September and October, pushing the cost to protect against a default by the investment bank to highs not seen since the height of the crisis.

However, some of those concerns abated after the

investment bank disclosed its net short position in France , which had been the subject of most of the speculation given the country's exposure to southern European debt.

Still, the stock continues to be pounded with every negative headline out of Europe.

Analysts' outlook for Morgan Stanley has brightened a little after it showed some improvement in its fixed income business and strength in its investment banking business.

The stock trades at a significant discount to its book value. Still, markets appear to be pricing in a secular change in the business model of investment banks with the implementation of the Volcker rule. Analysts expect the cost of compliance to rise significantly and

fixed income trading to take a big hit if the draft rules are implemented.

Read on for

the winners


3. Credit Card Companies

Pure-play credit card companies


(MA) - Get Report



(V) - Get Report

have recorded strong gains year to date, up 67% and 38% respectively.

Both MasterCard and Visa now belongs to the portfolio of

Warren Buffett's

Berkshire Hathaway

(BRK.B) - Get Report

. The legendary investor initiated a new position in Visa last quarter, buying 2.3 million shares and has about 405,000 shares in MasterCard.

The companies are benefiting from higher credit and debit card usage and global spending. MasterCard said net profit climbed 38% during the third quarter to $717 million, led by strong trends in spending. Earnings per share jumped 43% to $5.63.

Revenues climbed 27.3% to $1.8 billion over the year-ago period. Excluding acquisitions, revenues grew 24%.

Visa is also among Goldman Sachs' top 9 picks for 2012 with a price target of $110.

MasterCard and Visa are dealing with new regulatory changes in the banking industry that limits how much banks can charge merchants for processing debit card transactions to 24 cents. That might lead banks to pressure the credit card companies to lower their fees.

2. Sub-Prime Mortgage Servicers

Riding the wave of mortgage loan delinquencies and foreclosures in 2011 were sub-prime mortgage servicers,

Ocwen Financial

(OCN) - Get Report


Walter Investment Company



The stocks of these companies are up 37% and 18% respectively year to date, making them relative outperformers in the stock market.

According to FBR Capital analyst Paul Miller, the special servicing opportunity is poised to experience substantial growth over the next two years. "Many of the private-label litigation actions between investors and big banks still need to be resolved and special servicers will likely be able to capitalize on the new business," he wrote in a note. The analyst says the amount of delinquencies outstanding will ensure that there is an adequate pipeline for special servicing over the next five years.

Tampa, Florida-based Walter Investment was among the few

financial stocks hedge funds bought in the third quarter.

Ocwen Financial has been

aggressively buying out the mortgage servicing portfolios from

Goldman Sachs

(GS) - Get Report

and Morgan Stanley.

Sterne Agee analyst Henry Coffey rates Ocwen a buy with a $17.50 price target, saying in a report after the third-quarter results were announced that the coming acquisition of Saxon will cover "all of the growth we have been projecting for 2012.

1. Small-Cap Regional Banks

Small-cap regional banks outperformed large-cap money-center banks by a mile as investors rewarded banks that focused on plain vanilla banking instead of capital market activity and had a domestic as opposed to an international focus.

On an average, small-cap regional banks with a market cap of less than $2 billion declined by about 17% in 2011 compared to a 24% decline among large-caps, according to data compiled from


Banks with a average trading volume of less than 50,000 were excluded.

Citizens Republic

( CRBC) topped the bank return charts with a year-to-date return of 60%.

Texas Capital Bancshares

(TCBI) - Get Report


CVB Financial

(CVBF) - Get Report

were among the other banks that delivered double-digit returns in a year that punished bank stocks.

KBW analyst Frederick Cannon expects regional bank outperformance to continue as European concerns persist. One stock he favors is

New York Community Bancorp

( NYB).

For those who don't want to avoid stocks that are relatively illiquid, he recommends exposure to an ETF,

PowerShares KBW Regional Banking

(KBWR) - Get Report

, which has a basket of regional banks which should fare well on a relative basis.

>>To see these stocks in action, visit the

2011's Bank Stock Winners


2011's Bank Stocks Losers

portfolios on Stockpickr.

--Written by Shanthi Bharatwaj in New York

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Shanthi Bharatwaj


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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.