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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Reader Comments (Page 1 of 1)
12-16-2008 @ 10:30AM
alan said...
Where the HELL are the regulators (oh, I forgot, these are the people that let us get into this mess).
If you examine the details of "these well capitalized" banks, you will note that their tier I assets are crap !!! Look a C and get ready for your jaw to drop when you determine how much capital is nothing more than deferred tax credits for all of the quarterly losses realized to date.
More GAAP and FASB tricks that are perfectly legal but in no way define a healthy financial condition. The true capital level is BARELY at the MINIMUM requirement for banks.
Anymore losses (do you think there will be any) and these guys will need to have a telethon for raising additional capital !!!
12-16-2008 @ 11:52AM
ANA said...
DON'T WORRY TAX PAYERS TO YOUR RESCUE. IN RETURN PLEASE ISSUE A CREDIT CARD IN MY NAME AT 29% INTEREST, THE FED'S WILL GIVE YOU CREDIT AT 0%. WHAT A DEAL FOR THE PEOPLE.(DON'T WORRY MY FAMILY DOESN'T EAT)
12-16-2008 @ 3:42PM
BHarrison said...
How low can they go . . . hmmmm . . . isn't "zero" the lowest level? And when they get close to that point, aren't they normally liquidated? Isn't that what we call Chapter 7 bankruptcy?
The problem is that without FULL DISCLOSURE, we don't know which banks are being propped up, do we? I would think that it is basically a "FOOL'S MARKET" for bank stocks, right?
What is going to happen IF the "Bailout fails" . . . and that is a VERY REAL POSSIBILITY . . . one that no one wants to discuss or think about; but it IS a possibility. Our economy and our society are much more complex than in the 1930s DEPRESSION. The American people are better get serious about pressuring Congress about handling these matters.
12-17-2008 @ 10:38AM
AlwaysMakingMoneycom said...
I listened in horror to a report this morning of how nearly half of the $700 billion that's been given to banks was given WITHOUT asking for any accountability!
Essentially, the banks can & have horded the money into their vaults without then turning & lending out the money; apparently, the banking system is no longer participating in the capitalist system that gave them rise.
Darrell
http://www.AlwaysMakingMoney.com
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12-27-2008 @ 9:20AM
Andy said...
Can I get a bailout If I become a bank?