) -- Of the three big banks that recently repaid bailout funds,

Wells Fargo

(WFC) - Get Report

could be the one whose post-TARP shares fare best.

Analyzing the impact of the Treasury's preferred stock investments in Wells Fargo,

Bank of America

(BAC) - Get Report



(C) - Get Report

is difficult. Besides getting rid of hefty dividend payments, the other benefits of paying back funds from the Troubled Asset Relief Program appear harder to value than the

toxic assets themselves.

How does one put a price tag on uncertainty, or the value of a well-paid executive vs. a less well-paid one? Is it possible to quantify the impact on operations of intangible populist pressure? (Which, by the way, doesn't actually vanish with the Treasury's preferred stock, if

Goldman Sachs

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is any example.) And how can investors truly determine whether any of these stocks are expensive or cheap, when Wall Street estimates have been

horribly amiss for the banks over the past couple of years?

One way to look at each company's post-TARP stock potential is to gauge how dilutive its repayment has been; how getting rid of bailout funds is likely to impact its ability to earn; and whether being TARP-free will help mollify investor fears on other fronts.

For Wells Fargo, the major concern of investors for awhile has been whether it

has enough capital to cover the bad loans on its balance sheet, much less a TARP repayment. The bank's capital metrics were, and still are, much lower than its peers. After paying back TARP, Bank of America expects to have an 8.5% Tier 1 ratio, while Citigroup anticipates an 11% ratio. Wells Fargo's metric is projected at 6.2%.

However, the theory goes that if a bank can repay TARP, regulators must consider it healthy enough to stand on its own, and investors should, too.

"With the TARP repayment, Wells Fargo has the buy-off of regulators on the valuations of its risky assets," says KBW analyst Frederick Cannon. "As a result, we believe that Wells

Fargo will be appropriately valued based on earnings."

A few analysts actually lifted earnings estimates, ratings and price targets after Wells Fargo made its announcement. Its TARP-related capital raise was far less dilutive than competitors, and getting rid of TARP dividend payments essentially evens out the $2 billion earnings hit that Wells Fargo expects to record in the fourth quarter.

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Given that Wells Fargo has proven its status as a capital-generating powerhouse, few doubt its ability to earn next year. And now that the "overhang of uncertainty" about TARP has been lifted, investors can start valuing the stock in relation to normalized earnings once again.

Based on Wednesday's closing prices and the average analyst forecasts for 2010 earnings, Citigroup appears to be the most expensive stock, with a forward price-to-earnings ratio of 49.3. Analysts expect the bank to earn 7 cents a share next year, according to

Thomson Reuters

, though it's not clear whether all of those estimates factor in the huge dilution that will take place before then. Bank of America is the second-most expensive, with a forward P/E ratio of 18.8. Analysts currently expect the firm to earn 84 cents a share in fiscal 2010.

That leaves Wells Fargo as the cheapest stock by P/E ratio, and it also is expected to earn the most money for shareholders. Its forward P/E ratio is 14.4, based on an average prediction that it will earn $1.80 a share next year. Notably, Wells Fargo is the only one of the three stocks that has

rallied consistently since reports emerged last week that it was in talks to repay TARP.

"This bank remains one of the industry's most profitable, and now those profits can go back to the shareholders," NAB Research's Nancy Bush said recently, reiterating her buy rating on Wells Fargo's stock.

Furthermore, while the issuance of new common stock to the private market alone will increase Citigroup's float by 24%, and Bank of America's by 15%, Wells Fargo's capital raising has diluted shareholders by just 9% so far.

Overall for Citigroup, the rush to race along with its peers and pay back TARP sooner than later seems to have done

more harm than good so far. The company's announcement on Monday of its plans to raise $20 billion to repay part of its bailout tab, and that the Treasury would begin selling its 7.7 billion common shares surprised many with its timing. Before reports circulated last week that the bank was in discussions with regulators to exit the program, few believed it was in a position to repay those funds entirely.

Now the company appears to have been hasty. Citigroup priced its offering of 5.4 billion shares of common stock for $3.15 a piece -- a significant discount to last Friday's closing price of $3.95, reflecting the hard line taken by institutional investors on what they were willing to pay for new Citigroup stock.

And, in the end, the Treasury decided to hold off on flooding the market with its own mammoth holdings -- a roughly 34% stake it owns at $3.25 per share -- extending a lock-up period on selling common stock to 90 days. Amid all the dilution and backtracking, Citigroup shares have declined sharply, closing at $3.20 on Thursday. down 7.3% for the session.

Bank of America's announcement on Dec. 2 that it would repay its entire $45 billion in TARP funds was an even bigger shock to investors. But its mega $19.29 billion capital raise went through with less of a hitch, saw strong demand, and the shares were priced at what seemed to be a reasonable discount.

But while paying back TARP removes hefty dividends for 2010, it doesn't appear that it will benefit Bank of America's earnings potential in the same way as Wells Fargo. In addition, the company still faces lingering uncertainty on a number of fronts.

Among the question marks still facing Bank of America are the

Merrill Lynch

investigations and lawsuits; the outcome of "too big to fail" discussions in Washington that could force Bank of America to pare down its diverse business lines; and the sentiment of customers who are fed up with the financial industry at large, and consider Bank of America to be the prototype of big, greedy banks. Those are the same customers Bank of America hopes to profit from. Furthermore, some of its main profit hubs, such as its credit card business, will be impacted by new laws and a Consumer Protection Agency that will restrict fees and sudden interest-rate hikes.

As for evidence of how this uncertainty will affect Bank of America, its board was still apparently unable to lure outside talent to take over the CEO job from Ken Lewis, despite its TARP repayment. The board chose internal candidate

Brian Moynihan instead.

Wells Fargo is in the spotlight less than Bank of America. It is less troubled than Citigroup, and it isn't going through the same, large restructuring effort. And while post-TARP its capital ratios remain lower than Citigroup or Bank of America, it is also much smaller, with less exposure to riskier capital markets businesses that require higher reserves. Furthermore, Oppenheimer analyst Chris Kotowski notes, Wells Fargo is already "significantly profitable and is generating capital currently, while the other two are not."

While removing TARP "uncertainty" will benefit Wells Fargo, unlike Bank of America and Citigroup, its TARP repayment has tangible benefits too. Sandler O'Neill analyst R. Scott Siefers outlined them in a report on Tuesday.

"The fact that the combination of actions announced last night likely won't hurt earnings expectations for 2010 is a plus," Sandler O'Neill R. Scott Siefers said in a note on Tuesday. "Second, the size of the raise and dilution to the share count strike us as tolerable...Third, the completion of the raise should help the stock to find firmer footing, given that Wells Fargo has under-performed recently on the related uncertainty and speculation. Fourth, adding about one percent to the

tangible common equity should help to alleviate capital adequacy concerns and allow investors to focus more exclusively on fundamental trends."

Wells Fargo shares are on track to close out 2009 down more than 10%, a performance that's worse than Bank of America's plus 5% gain, but much better than Citigroup's decline of nearly 50%. Considering the company's earnings potential, the relatively moderate dilution of its TARP-related stock sale, and the strategic avenues opened up by leaving government scrutiny behind, 2010 could be a year when Wells Fargo shares set the pace, instead of languish in the middle of the pack.

-- Written by Lauren Tara LaCapra in New York