Banks up Fed borrowing, watch for new share price lows

The suckers who bought into bank stocks a month ago thinking the worst of the credit crisis and financial company write-offs have mostly passed have seen much of their investment hammered.

And that is about to get worse. The easy-to-see reason is that mortgage paper is still losing value as housing prices continue to drop.

More ominous is the borrowing that banks are making at the Fed. According to Reuters, "Banks borrowed a record amount of funds from the Federal Reserve in the latest week as the year-old credit crisis took a persistent toll." That number hit $17.45 billion per day. In other words, the bank balance sheet problem is extending into the third quarter and may be getting worse.

The IMF has commented that the total write-off due to the mortgage debacle will hit $1 trillion. Only about 40% of that has been written off, which means that the next two or three quarters of earnings could be devastating.

Citigroup (NYSE: C) now trades at $18.59, against a 52-week low of $14.01. It has a market cap of $102 billion. If it has to raise another $15 billion to offset losses, especially if the stock sold to raise the money is below market, Citi's shares could move down to $12 or $13. Other large money center banks face the same trouble.

Banks will hit new lows before the end of the year.

Douglas A. McIntyre is an editor at 247wallst.com.