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Are big bank stocks about to hit new lows?

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HSBC (NYSE: HBC) may have to raise $14 billion due to more losses from mortgage-related securities and other credit instruments. Friedman, Billings, Ramsey Group has cut Bank of America (NYSE: BAC) to Underperform and set a new price target of $9. According to Reuters, Friedman said Bank of America's equity ratio is so low that the bank will have to raise a "substantial" amount of capital, diluting existing shareholders.

Since BAC trades at $14 and has a 52-week low of $9, the new target is shocking. But it may be a reasonable assumption about all big banks. They may be headed toward new multi-year lows even after cash injections from the Treasury.

Most analysts see banks posting further large losses for the fourth quarter and few expect a recovery in early 2009 as housing prices continue to drop, corporate lending and underwriting dry up, and consumer credit defaults rise. At $7.40, Citigroup (NYSE: C) trades at about twice its low, but a really bad quarter could change that. The same holds true for Wells Fargo (NYSE: WFC), which several stock analysts say will have to raise more money. It trades at $26, not far from its 52-week low of $19.89.

Two months ago, owning bank stocks looked like a very good way to make some quick money. Now, it is time to dump them.

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

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Symbol Lookup
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DJIA-14.2810,318.16
NASDAQ-10.782,146.04
S&P 500-3.521,091.38

Last updated: November 22, 2009: 01:39 PM

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