Financial crisis spreads, more write-downs at UBS

The news from Lehman (NYSE: LEH) was not bad enough. The brokerage will post a loss of $2.8 billion and raise $6 billion in new capital. Now word comes that big Swiss bank UBS (NYSE: UBS) is in trouble again.

According to The Wall Street Journal, "When it proposed its capital-raising plan to investors, UBS said further write-downs may hit earnings, and it said in May that some asset classes continued to deteriorate and will hamper future earnings."

Of course, the news begs the question: how bad can things get for US banks? Citigroup (NYSE: C) may be the prime example. It still holds billions in mortgage paper and LBO debt, and it could face charges on credit card defaults. The market has already started to price more trouble into the US bank's stock.

Citi is now trading below $20 for the first time since March when a panic hit a number of large US bank shares. The stock recovered to almost $27 in late April. Several other American banks have seen their shares drop by similar amounts.

Citi's stock probably has not found a bottom. If the bank reports weak numbers in the next two quarters, it may have to raise money the way Lehman did. Substantial dilution could take the shares down another 10% to 15%.

Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Under $10 letter.