Financial Stocks Slammed On Capital Fears

U.S. financial stocks were weaker across the board today as investors worry that the capital levels at many banks are inadequate. Illustrating the broad-based carnage in the sector, the main ETF for the sector, Financial Select Sector SPDR (AMEX: XLF), fell an astonishing 16.5% --- the largest % drop since 12/01/08.

News yesterday from the UK about an expected $48 billion loss at Royal Bank of Scotland (NYSE: RBS) and a second 100 billion pound bank bailout package in the UK, set the stage for a weaker start in the U.S.. In addition, State Street (NYSE: STT), a bank that was thought to be immune from the wreckage, reported a huge drop in profits, lowered its guidance and updated its risk factor, sending the stock down 59%.

NYU Professor Nouriel Roubini, who has been ahead of the curve on the credit crisis, said financial losses from the credit crisis may reach as high as $3.6 trillion and that the banking system is "effectively insolvent."

Among the losers today was Bank of America (NYSE: BAC), which lost 29% on fears the company may need to raise even more capital just days after getting a fresh $20 billion from the U.S. government. Analysts at Friedman, Billings, Ramsey lowered their price target on BofA to $5 per share, saying tangible common equity is too low with questionable near-term profitability and credit costs.

Wells Fargo (NYSE: WFC) fell 24% today, again on capital concerns and fears the company may have to cut its dividend.

In addition, JPMorgan Chase (NYSE: JPM) fell 21% and Citi (NYSE: C) fell 20%.