Bank Stocks Obliterated

Yesterday's big news was that the Dow Jones closed at its lowest levels since 2002. That's undoubtedly painful and frustrating news. Even if you're a long-term investor, who knows full well that buying hot stocks at these levels will set you up for long-term success, lopping off seven years of returns still hurts.

Then I took a look at bank stocks this morning, and everything suddenly became relative: Some of our largest banks, you see, now trade at their lowest levels since the early 1980s.

For the year to date -- all of about seven weeks -- here's how the biggest banks have performed:

Bank	Year-to-Date Performance
Bank of America (NYSE: BAC)	(77%)
Citigroup (NYSE: C)	(72%)
Wells Fargo (NYSE: WFC)	(69%)
JPMorgan Chase (NYSE: JPM)	(39%)
US Bancorp (NYSE: USB)	(61%)

*Using intraday prices as of Feb. 20.

As I write, Bank of America is at its lowest level since around 1984. Citigroup is at its lowest level since the banking crisis of 1991. The only relative bright spots of the banking world are Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS), the latter of which is actually up year to date.

But does it really matter?
Yes. For almost any other investment, at any other time, pointing out short-term share fluctuations would be immaterial for long-term investors focused on the quality of the business. In banks' case, share prices will in fact dictate their future, simply because the common denominator these days is a bank's capacity to raise capital.

Without a significant common-stock base, some banks -- particularly Bank of America and Citigroup -- will be forced to turn to the government to shore up their books. With paper-thin capital cushions beyond what Uncle Sam has already pumped in, the theory du jour is that some form of nationalization -- either fully, or partially like Fannie and Freddie -- is the only way to prevent all-out failures.

Are the fears justified? No one really knows, but it certainly seems feasible. Earlier this month, Bank of America CEO Ken Lewis told CNBC that the prospect of nationalization was "just absurd" and fueled by "a bunch of malicious rumors."

That may be true, but Ken Lewis also forecast back in September that the Merrill Lynch acquisition was "a great opportunity for our shareholders." It's safe to say that his ability to predict the outcome of important events has been thoroughly discredited.

Where to now?
Anyone who tells you they know exactly what'll happen with banks isn't being honest with themselves. Time will tell, yet I wouldn't hold on to a ray of hope. The low single-digit share prices where these top stocks now trade represent more of a call option on hope than actual shareholder value.