WaMu's Gone, but Trouble Spots Remain

You can find more stories like this in our On the Brink series.

Washington Mutual's (WM Quote) extraordinary demise late Thursday hasn't exactly been the watershed moment Wall Street was hoping might kickstart the financial sector's recovery.

Market observers and analysts say unless a bailout package is passed soon by Congress, more banks could disappear.

While most analysts were reluctant to name which bank could be next to follow in Washington Mutual's footsteps, investors on Friday were clearly delineating they firms they believed could be in greatest need of aid.

"The market perception is clearly that all the bad players have not been dealt with," says Nancy Bush, an independent analyst in Annandale, N.J. "I would say that's not true, but we're in an environment where perception is not reality. The market is already telling us where the perceptions of weakness are."

Bank stocks took a tumble on Friday following the news of WaMu's failure. The Keefe Bruyette & Woods bank index of the top 110 banking companies fell 3.6% to 69.39.

Among the largest losers, shares of Wachovia (WB Quote) plummeted 34%, while National City's stock price lost as much as half its value at one point. Other midcap banks that also had steep declines included Sovereign Bancorp (SOV Quote), down 9%, and First Horizon (FHN Quote) off 15%.

Tom Hepner, an investment adviser with Ruggie Wealth Management, which has some investments in bank stocks, is concerned about Wachovia, unless the government passes a package.

"Smaller banks will not have any where near the impact [of WaMu] ... but a Wachovia would," if something doesn't happen to ease credit and provide some relief.