Moody's may drag down bank stocks further

Moody's is probably not done downgrading banks. It appears to be operating on the theory that even the strongest U.S. banks will be hit by more losses and need more reserves as the economy goes to hell more each day. That could cause the largest U.S. financial firms to have to raise even more capital.

According toBloomberg, the key to Moody's thinking is that "Ten of 12 Fed district banks reported worsening conditions in their regional economies and respondents didn't expect a 'significant pickup' until late 2009 or early 2010." The banks that the credit agency is watching are JPMorgan (JPM), Wells Fargo (WFC), and Bank of America (BAC).

If any of these firms is hit with another downgrade, its stock is likely to slide further, which, given how low they already are, seems almost impossible.

But expect the worst and hope for better. JPM trades at $19.30. Its 52-week low is $17.70. Bad news about its earnings could send it to $15 or below. The same dynamics hold true for the two other banks.

It looks like financial stocks are still a very poor gamble.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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