Banks Continue to Bleed Red and Drag Down the Markets

Headline news continues to gush forth from the banking sector. As the week ends, bank earnings and talk of future write-downs have dropped the markets, as the Dow has shed 4% for the week and now sits at a 3 month low. The big banking story is that analysts at Merrill have written that investors have "capitulated" on bank stocks and are selling them below value based on credit fears, legislation, etc.

Reuters, via CNBC says:

"U.S. large-cap regional banks' stocks now appear to be in "capitulation mode" and will likely trade below fair value in the near term as more dividend cuts and capital raises, high credit risk and an uncertain earnings outlook all weigh on their share prices, an analyst at Merrill Lynch said."

There was also a rumor floating around the markets that Merrill Lynch, from the article above was preparing to make a negative earnings announcement. According to CNBC these rumors are untrue although no one would be surprised by it.

In a research note last week, analyst Roger Freeman of Lehman Brothers said Merrill appears increasingly likely to raise additional capital.

Freeman also said he expected Merrill to post additional write-downs from collateralized debt obligation and subprime exposure.

CNBC continues its banking coverage and writes that according to its sources, a major bank merger may be in the works.

"JPMorgan Chase CEO Jamie Dimon has made no secret he wants to buy another bank, and Wachovia is high on the firm's radar screen, JPMorgan insiders have told CNBC."

JPMorgan is acting opportunistically and snapping up injured banks and investment banks. It will clearly emerge from the credit crisis as a major player in commericial and consumer banking.