WaMu's Gone, but Trouble Spots Remain

Some observers say that for all the political wrangling going on in and outside of Congress regarding the proposed $700 billion bailout package, it won't be the cure all for a recovery in the financial sector.

"I don't think there is going to be a watershed moment," Bush says. It will "simply be a moment where we pick up our heads and housing inventories have fallen or home price declines have stopped or foreclosures have peaked. There will just be a moment where everybody says 'OK.' But between now and then there is going to be a lot of damage."

Fox-Pitt, Kelton Cochran Caronia Waller analysts cited Wachovia, Comerica (CMA Quote) and Marshall & Ilsley (MI Quote) among the 14 large-cap and Midwest regional banks covered by the firm as those most at risk given their exposure to problematic assets, according to a report issued Thursday.

The analysts looked at residential mortgages, home equity and residential construction loans, as well as certain capital-markets related investments.

"The bottom line is that we believe banks have not marked down these 'key concern' assets to reflect remaining loss content," the note said. "Unfortunately we estimate banks have realized only 46% of ultimate losses across these assets. Capital markets-related assets have generally been marked-to-market each quarter."

At least two analysts upgraded National City to buy-equivalent ratings on Friday given the bank's strong capital position.

This spring, National City underwent a $7 billion capital injection led by Corsair Capital and other investors. The company has had similar troubles as WaMu due to its foray into subprime mortgages through its former First Franklin subsidiary and home equity loans brokered by third parties. The Cleveland-based bank has since retooled its mortgage business away from third-party originated loans as the housing and credit markets deteriorated.