Dark clouds keep bargain hunters wary

By Steve Slater

LONDON (Reuters) - Europe's scarred banks face a long haul to shake off their 2008 hangover as recession, political intrusion and further capital raising leave their valuations -- the lowest for decades -- far from being a bargain.

European lenders face hefty losses as corporate and consumer loans sour and more asset writedowns loom, while funding markets remain tough.

Banks may need to raise up to 100 billion euros (90 billion pounds) in capital as the recession bites, analysts reckon.

Investors are trying to gauge whether the grim outlook is reflected by some of the lowest sector valuations ever seen.

"Clearly the banking sector on a global basis is still under a lot of pressure over their balance sheets. Until asset values stabilise it's very difficult to know where the bottom is," Ian Henderson, fund manager at JP Morgan, said.

"You can say price-to-book value looks attractive with most banks trading at or below book value. But that isn't a backstop if that book value proves to be illusory. It's a very tricky situation," he said.

The likelihood capital will continue to be raised was underscored on Thursday when Germany injected 10 billion euros into Commerzbank (CBKG.DE) in the face of more writedowns and "an economically stormy environment".

The scale of fundraising surged last quarter as governments stepped in to backstop banks in trouble and regulators demanded bigger capital cushions.