BofA and Citi shares sink as investors fear more losses

By Juan Lagorio

NEW YORK (Reuters) - U.S. bank shares sank on Tuesday, with Citigroup Inc and Bank of America Corp hitting their lowest levels since the early 1990s as investors, seeing no quick end to losses from toxic assets, worried that many banks are running short of capital.

The KBW Bank Index of leading commercial banks dropped nearly 20 percent to a 14-year low, tumbling almost 43 percent this month alone.

Confidence in the banking sector was further rattled after State Street Corp said it could need to raise capital and reported a 71 percent drop in fourth-quarter profit on Tuesday, a day after Royal Bank of Scotland Group Plc posted the biggest loss in U.K. corporate history.

The rout was widespread, with shares of regional bank PNC Financial Services Group Inc sliding 41 percent and even relative islands of safety like JPMorgan Chase & Co dropping 21 percent. Investors were worried that the U.S. economy was worsening and that banks may not be able to withstand more credit losses without government help, further diluting shareholder interests.

"The market doesn't trust that banks have properly marked their balance sheets and their loan portfolios. The sense is there are further marks to come, that tangible book is not as it is stated today," said Robert Patten, a bank analyst for Morgan Keegan.

Four analysts increased their 2009 loss estimates for Citigroup Inc due to higher bad loans. Shares of the third-largest U.S. bank closed below $3, a level last reached in November, when the government rescued it with an injection of $20 billion and a backstop on toxic assets.

'ASSUMING THE WORST'

Four days after posting its first quarterly loss in 17 years, Bank of America Corp stock fell to its lowest level since November 1990 as analysts said the largest U.S. bank would remain under pressure until it rebuilds its capital.

Citigroup shares fell 70 cents, or 20 percent, to $2.80, their lowest level in 18 years, while Bank of America stock sank 29 percent, or $2.08, to $5.10.

"From the loan portfolio to the balance sheet condition, you have just bad news for the banks," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management.

"People are just assuming the worst," said Walter Todd, a portfolio manager at Greenwood Capital Associates.

The U.S. Treasury Department has asked big banks receiving government bailout funds to provide more details about lending, a sign of further pressure to increase credit -- and hopefully boost the economy -- as they struggle with mounting losses.

On Monday, RBS said it was on course to report a 2008 loss of up to 28 billion pounds ($41 billion) after taking big losses from bad debts, while Britain threw its troubled banks another multibillion-pound lifeline, the second since October.

RBS shares fell 11 percent on Tuesday after sinking 67 percent Monday, while Lloyds Banking Group Plc stock lost almost one-third of its value, hitting its lowest price in 20 years. Barclays Plc lost 17 percent, despite the fresh government actions to pump money into the markets.

'INVESTOR FATIGUE'