Dear Mr. Berko:

Dear H.L.:

I think that your broker has a terminal case of infectious stupidity. His recommendations could be the death of your $16,000.

It was just a few years ago when bank issues were considered a dependable source of dividends and dividend growth for income-oriented investors. Then they crashed and burned. They’re out of danger now but on a slow boat to recovery. Stay away from them.

These big banks have enormous exposure to the crises in Europe, because they own huge chunks (they won’t tell us how much) of European bank debt, and that exposure might force them to raise billions of dollars of new capital.

The only U.S. banks I would consider are the smaller ones, such as Regions Financial Corp. (RF-$5.17), Fifth Third Bancorp (FITB-$13.08), Associated Banc-Corp (ASBC-$12.44), Huntington Bancshares Inc. (HBAN-$5.64), Synovus Financial Corp. (SNV-$1.75) and a few others. These regionals don’t have exposure to the debts of Italy, Spain, Greece, Hungary, Portugal, etc. Though their recoveries will be slow, they’ll be quicker than those of the too-big-to-fail boys.

However, a bank I’m comfortable recommending is the Royal Bank of Canada (RY-$52.58), which pays a $2.14 dividend that yields 4.1 percent. Revenues, earnings and dividends of this 1,760-location bank with 400 offices in 30 countries appear solid and promising. The dividend, which may be raised to $2.18 per share this year, is well-covered by expected earnings of $4.76 per share from $77.5 billion in revenues.

RY is Canada’s largest bank and has a Tier 1 capital ratio of 13.4 percent, which is about 22 percent higher than the 10.8 percent average for the top 10 U.S. banks. Mortgage lending in Canada is embarrassingly conservative and certainly too conservative for the likes of the U.S. Congress. RY’s loan-to-value ratio on uninsured mortgages is 50 percent, which is a comfortable cushion if Canadian home prices fall.

Meanwhile, Canadian mortgages are full-recourse (Congress wouldn’t allow this either), which means that lenders can do more than foreclose; they can attach a mortgagor’s other assets. This is one of the reasons that Canada’s banking system emerged unscathed from the meltdown; it was a result of strict capital rules and a better regulatory environment.

Canada’s gross domestic product (GDP) last year rose a solid 2.4 percent – double the GDP growth in the United States. This year, Canada expects its GDP growth to exceed 3.1 percent versus less than 2 percent for the United States.

RY is a solid bank with solid management and has a board of directors that cringes at the unseemly behavior of its American counterparts – the Wild West investment activities of American managers and their excessive pay scales, bonuses and option grants. If you want banking representation in your portfolio, consider owning 100 shares of RY, and use your remaining cash to buy a few shares of Regions, Fifth Third, Synovus, Huntington and Associated.

Sit on them for three to five years, and I suspect these investments will prove eminently superior to the recommendations of your brokester.