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Bank stocks plunge on fresh insolvency fears

Financial Law     updated  2009/01/15 23:52

Shares of major U.S. banks plunged Thursday as the government mulled giving Bank of America Corp. a fresh multibillion-dollar aid package, raising fears on Wall Street that the battered financial sector may need an even bigger bailout.

Bank of America shares fell as much as 28 percent — dropping to the their lowest level in 18 years — on news that the bank may seek another capital injection to manage losses from its takeover of Merrill Lynch. Citigroup Inc. shares fell to a near 16-year low as investors braced for horrible fourth-quarter earnings due Friday. And JPMorgan Chase & Co. added to the pessimism with a grim earnings outlook. Shares of all three banks came off their lows later in the day as part of a broad market turnaround.

Still, the carnage fanned investor fears that mounting bank losses and a darkening economic outlook are thwarting government efforts to resuscitate the banking sector. It raised the distinct possibility that the largest financial rescue package in history may swell even further.

"The perception on Wall Street is that things are getting worse and that the banks are bearing the brunt," said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago.

Bank of America, which already received $25 billion under the government's Troubled Asset Relief Program, or TARP, could get billions more to help it absorb losses from its buyout of Merrill Lynch, according to a person with knowledge of the discussions, who spoke to The Associated Press on condition of anonymity because of the sensitive nature of the discussions.

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