" We think the slowdown in capital markets revenues is more structural than cyclical," wrote Standard & Poor's credit analyst Richard Barnes in a July 2 note that outlined why the ratings agency sees new regulations, high expense and lasting macroeconomic risks as reason to question whether investment banks will even be able to out return their cost of capital in coming quarters and years.

The prospect of trading losses like those booked by JPMorgan and added political and regulatory pressures on the heels of a $450 million fine that Barclays paid to U.S. and U.K regulators for its manipulation of short-term interest rates, and which cost CEO Bob Diamond his job, suggest added risks. Meanwhile, S&P's outlook for investment banks is similar to what drove Moody's to cut ratings in June.

As it turns out, it's Buffett plays like Wells Fargo and U.S. Bancorp that remain a source of financial sector strength headed into second quarter earnings, which are likely to be relatively disappointing. On Thursday, Credit Suisse analyst Moshe Orenbuch cut his earnings estimates for JPMorgan, Citigroup and Bank of America because of their sensitivity to the weakness of capital markets. Among large cap banks, Orenbuch left his earnings estimates for Wells and U.S Bancorp unchanged, while noting that throughout the industry, weaker capital markets revenue may be offset by loan growth and cost cuts.

Expectations of a housing construction rebound and mortgage demand have even given some reason to expect that Wells Fargo may surprise on the upside for the remainder of 2012. Amid continued uncertainty about the global economy, JPMorgan analyst Vivek Juneka said Wells Fargo was his best large cap bank investing idea in a June 2 sector outlook that cited the bank's mortgage origination and loans businesses as standing apart from peers. Among mid and small cap banks, JPMorgan analysts highlighted First Horizon National ( FHN) as a top pick.

For those who are ready to throw in the towel on large cap bank stocks like JPMorgan, Bank of America and Citigroup, following Warren Buffett's focus on capital returns, stable business models and faster-than-industry average growth may be a simpler and more effective strategy.

For more on bank earnings, see 10 banks you need to watch during second quarter earnings season. See why Warren Buffet can rest as John Paulson digs in for more on competing bank investing strategies.

-- Written by Antoine Gara in New York

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