Given the sharp drop in financial stocks this year, it should come as no surprise that hedge fund managers were dumping shares during the third quarter. There was nearly uniform disgust with U.S. bank stocks like Bank of America ( BAC), Citigroup ( C) and JPMorgan Chase ( JPM), which had all been big winners for hedge fund managers who bet on their recovery after the financial collapse in late 2008. Financials as a group are the worst performing sector on the S&P 500, down 19% this year through Nov. 10, according to Capital IQ. That performance may have been too much for the likes of David Tepper. His Appaloosa Management hedge fund completely sold out of its positions in Bank of America, Wells Fargo ( WFC), Fifth Third ( FITB) and MetLife ( MET). He also reduced his Citigroup stake. Others followed in Tepper's footsteps, with Eton Park, Paulson & Co., Glenview, Maverick Capital, and Lone Pine Capital among the other big hedge funds slashing their U.S. bank holdings. Among other interesting sales, Bill Ackman's Pershing Square sold shares of Greenlight Capital Re ( GLRE), John Paulson sold State Street ( STT) and NYSE Euronext ( NYX), and Maverick Capital dumped shares of BlackRock ( BLK). Though it may be hard to believe, some hedge fund managers were buyers of financial stocks last quarter, which increased their reported portfolio's sector weighting. Most notably, Caxton Associates bought shares of Bank of America and Wells Fargo, among others. David Einhorn's Greenlight Capital picked up shares of Legg Mason ( LM). Whitney Tilson's T2 Partners was a buyer of Citigroup and Goldman Sachs ( GS). These financial buyers may not be completely crazy. If there's one reason for optimism, next year's earnings growth may be it. According to FactSet Research, financials should see earnings growth of 25% in 2012, the highest based on analysts' estimates of all sectors. It remains to be seen if the European debt crisis and the exposure to those troubled countries derails those rosy forecasts.