Shares of large banks plummeted Thursday as investors grew fearful that asset values at several are declining and that they can survive only with additional cash from the federal government.
"The banks are broke, and each day their capital requirements skyrocket, but there's no place to raise capital," says Sean Egan, managing director of ratings agency Egan-Jones.
Bank of America BAC fell 18.4% to $8.32, Citigroup C lost 15.5% to $3.83, Wells Fargo WFC dropped 12.6% to $20.16, and JPMorgan Chase JPM slipped 6.1% to $24.34.
The sell-off followed reports that BofA wants billions of additional dollars from the Treasury Department's bailout fund.
BofA needs the cash to complete its acquisition of Merrill Lynch and to help make up for a deterioration of assets at the brokerage firm, according to industry and government sources who are familiar with the talks but declined to be named because discussions are ongoing.
The government gave $15 billion to BofA in October, while Merrill got $10 billion.
"The government is caught, because to let them fail now means the first round of cash would be flushed down the toilet," says Peter Schiff, president of Euro Pacific Capital.
Investors also are anxious about what they'll hear Friday when Citi discloses its fourth-quarter financial results.
The banking giant could report a loss of about $10 billion for the period, says Richard Bove of Ladenburg Thalmann. Citi CEO Vikram Pandit is expected to outline plans to sell assets equal to a third of the bank's balance sheet. Citi said this week that it will sell part of Smith Barney for $2.7 billion to Morgan Stanley.
"Citi is obviously in dire need of capital, and the government can't give any more, so it had to sell the most liquid of its assets," says Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel.
Citi will follow JPMorgan Chase, which reported a $702 million profit for the fourth quarter, beating the consensus estimate of zero profit from analysts surveyed by Thomson Reuters.
Still, the profit was down 76% from the same period in 2007. The bank marked down $2.9 billion in leveraged loans and mortgage-related securities.
Banks also were in the spotlight as a group of former central bankers and finance ministers led by Paul Volcker, an adviser to President-elect Barack Obama, released a report calling for tighter regulation of banks, insurance companies and hedge funds.