Bank Crisis Only 33% Over (C)(BAC)(UBS)

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Wall St. almost always takes the public proclamations of hedge funds and short sellers with a grain of salt. But, some of the recent negative comments about Lehman Bros. may well have turned out to be true.

John Paulson, head of the hedge fund GAIM International and not a relative of the current Treasury Secretary, says that banking write-downs will hit $1.3 trillion. He sees the next year being worse for the financial system than the last year has been. Bloomberg quotes him as saying “We’re only about a third of the way through the writedowns." Paulson does think distressed securities are a good investment now, so he may be talking out of both sides of his hat.

If the projection is right, it would not be hard to imagine big money center banks getting hurt much worse as the year goes on. Citigroup (C), Bank of America (BAC), UBS (UBS), and several brokerages and insurers may have to seek out several billion dollars more capital each.

Most large cap financials are near 52-week lows. Paulson’s view of the world would almost certainly cause them to sell off more. Oppenheimer’s Meredith Whitney, the most quoted of bank analysts, has already said she feels the darkest days are still ahead.

Citigroup at $10? It was last there in 1995.

Douglas A. McIntyre