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.