It is hard to see how the banks can re-capitalize with private capital unless the bank is first seized by the FDIC, with shareholders and bond holders wiped out, and then sold to private equity similar to what just happened with IndyMac. This has to be in the back of many investors' minds. The banks can not issue new preferred stock to private investors for the simple reason that few would buy a new issue of preferred stock now or buy it at a price the bank could afford to pay. Even the bond market has dried up for them. The only source of funding now is the government and the government will start to get tough with them. The government will be far tougher on the next 350 billion than the first installment, which was a gift to the banks with a mere 5% preferred dividend and no meaningful restrictions or even requirements to lend the money. After the next 350 billion is exhausted, I suspect that government's patience will be near an end and more FDIC seizures of larger institutions will start in earnest.
For now, I will continue to stay away from all bank stocks and their preferred issues. I am stuck in my Bank of America positions and will just wait and see. I do look forward to voting against the Board. At some point, as time passes, it may become clearer who will survive and who will be relegated to the dustbin. An opportunity to engage in intelligent speculation may arise by early 2010, and speculation is the only appropriate word to describe an investment in banks now in my opinion. And, it would not be intelligent speculation at this time.
This is a link to an article expressing a different opinion. WSJ.com