NEW YORK ( TheStreet) -- Hedge funds continued to shed financials - mostly bank stocks- during the third quarter as mounting concerns about European debt and heightened volatility eroded conviction of the most seasoned of investors.

Appaloosa Management's David Tepper, who made a fortune from bank stocks in 2009, eliminated his position from Bank of America ( BAC) and Wells Fargo ( WFC) and cut back his holdings in Citigroup ( C).

John Paulson, who is having a rough year, unloaded his position in JPMorgan Chase ( JPM), while paring exposure to Citigroup and Wells Fargo.

Perhaps he decided it was time to cut his losses.

Overall, Citigroup saw the most selling during the quarter among financial stocks, which explains the stock's meltdown in recent months. JPMorgan and Bank of America also saw heavy selling, as did Goldman Sachs ( GS)and Morgan Stanley ( MS).

Wells Fargo was the only one among the big four to continue to attract some buying interest. With little exposure to Europe, the bank has withstood the volatility in the market.

Still, a look at aggregate 13F filings of hedge funds, reveals some notable buys in financial stocks, including non-bank holding companies. TheStreet parsed through Bloomberg data to see which financial stocks attracted the most hedge fund money in the third quarter. The shortlist does not include real estate investment trusts, which is also classified as financials by Bloomberg.

As always, it is worth remembering that the information in these filings are dated. Positions in the stocks listed below could have changed. Also the regulatory filings do not require institutional investors to disclose short positions, so the portfolio disclosures are incomplete.

Still, here is a glimpse of what the smart money have been betting on recently.

Berkshire Hathaway

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Legendary investor Warren Buffett's Berkshire Hathaway ( BRK.B) was a favorite, attracting fresh hedge fund purchases to the tune of $431 million.

Hedge fund D.E. Shaw bought 2.36 million shares, while Adage Capital and Renaissance Capital bought 1.91 million shares and 1.21 million shares of the stock.

Towards the end of the third quarter, Berkshire Hathaway announced it would buy back shares. Buffett, who had often been critical of buybacks, was sending a strong signal that he believed the shares of the holding company were undervalued.

Berkshire Hathaway's own 13F filings are often eagerly anticipated as investors look for clues as to what the Wizard of Omaha is buying. Buffett surprised investors with a fresh stake in IBM ( IBM), foraying into the technology space which he had long avoided.

Its biggest acquisition in 2011 was chemical company Lubrizol for $9 billion.

Shares of Berkshire Hathaway are down 7% so far in 2011.

The stock has two outperform ratings and one hold rating.

U.S Bancorp

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Sell-side analyst favorite U.S. Bancorp received much love from hedge funds in the third quarter. The stock saw $169 million worth of buying, with Viking Global Investors, Maverick Capital and Ken Griffin's Citadel being among the notable buyers.

The bank saw strong lending trends in the third quarter, driving a net income growth of 40% year-over-year to $1.273 billion or 64 cents per share. Average total loans increased 5% over the corresponding quarter of the previous year- 4.5% excluding acquisitions.

US Bancorp is gaining market share in corporate loans as foreign banks reduce their U.S. exposure, notably in the syndicated loan market.

The bank also ranks among the highest on profitability metrics with a return on assets of 3%.

Shares are down 6% year-to-date but the stock is a relative outperformer in the banking space.

22 analysts rate the stock a buy or outperform, 12 maintain a hold rating while two analysts have an underperform or sell rating.

Transatlantic Holdings

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Property and Casualty reinsurer Transatlantic Holdings ( TRH) saw its share of hedge fund action.

John Paulson's Paulson & Co bought 2 million shares of the firm. Westchester Capital and AQR Capital Management were among the other big buyers during the third quarter.

Transatlantic has been courted by a number of suitors in the reinsurance space, which has likely attracted merger-arbitrageurs. After calling off its merger with Allied World ( AWH) and rebuffing a unit of Warren Buffett's Berkshire Hathaway , the firm recently rejected an offer from Validus, saying the deal undervalued the company.

Shares of Transatlantic have gained 4% in 2011. Only one analyst has a buy recommendation on the stock. Eight other analysts preferred to stay on the fence with a hold rating.

Comerica

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Dallas, Texas- based Comerica ( CMA) saw $100 million worth of net hedge fund purchases. Citadel was the most prominent buyer, adding 4.9 million shares of the super-regional bank to its portfolio.

Comerica has been growing through a combination of strong commercial lending activity and acquisitions. While its outlook for loan growth is cautious, the bank expects to triple its market share in Houston, thanks to its acquisition of Sterling Bancshares which it completed in July.

"While trends within certain specialized areas like mortgage finance and auto floor plan could create some quarter-to-quarter volatility, with the run-off of commercial real estate slowing and new opportunities within the Sterling customer base, we see Comerica producing above-peer loan growth over the next year," Oppenheimer analyst Terry McEvoy wrote in a recent note following a meeting with the management.

Shares of Comerica have plunged 40% year-to-date.

The stock is rated outperform by 15 out of 33 analysts. 16 maintain a hold rating on the stock, while 2 have an underperform rating.

Walter Investment Management

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Tampa, Florida-based Walter Investment Management ( WAC) is a mortgage portfolio owner and servicer catering to the sub-prime segment.

Centerbridge Partners bought 1.8 million shares of the company, while Pine River added 1.5 million shares. Citadel and George Soros' Soros Fund Managament were also notable buyers.

Walter Investment is among the stocks projected to benefit from the mortgage mess, according to FBR Capital analyst Paul Miller. The thesis is that "1) the special servicing market is poised to experience substantial growth over the next two years. 2) 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 and 3) the amount of delinquencies outstanding will ensure that there is an adequate pipeline for special servicing over the next five years."

The company's has close to 1 million loans in its servicing portfolio.

Shares of Walter Investment have risen 18% in 2011. Only a handful of analysts cover the stock with two rating it a buy or outperform and 2 maintaining a hold rating.

>>To see these stocks in action, visit the 5 Financial Stocks Hedge Funds Are Buying portfolio on Stockpickr.

--Written by Shanthi Bharatwaj in New York

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