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Financial Crisis Is Still Far From Over, Market Pros Say

The financial industry was hit with more downgrades and dire predictions, sending most stocks lower in the already battered sector.

BlackRock's Bob Doll became the latest market pro to forecast a worsening of the credit crisis, telling CNBC Wednesday that the financial sector will only hit bottom after a round of consolidation and layoffs and the end of capital raising.

"We are still of the view, stubborn as we are, that we have not seen the end of the problems and therefore financials have not made a relative bottom," said Doll, BlackRock's global investment adviser for equities, during a wide-ranging panel discussion.

Financial stocks have plummeted in recent days as more analysts say the financial crisis is far from over and could even bring another big bank failure. Late Tuesday, Goldman Sachs downgraded a slew of large banks, while speculation mounted that Lehman Brothers would have to sell its Neuberger Bermanasset management unit to offset billions of dollars of additional writedowns from bad debt.

Gary Kaminsky, former managing director at Neuberger Berman, also said on CNBC that the continuing need for the largest financial firms to raise capital suggests more trouble ahead.

"When there's no longer a need to raise fresh capital in the delevering process and you can actually look at these entities and say they're well-capitalized to run their businesses in the new paradigm, that would be to me the sign that we've hit bottom," Kaminsky said. "When dilution is the solution you're not at the bottom."

Financial institutions, particularly large Wall Street investment banks and government-sponsored entities Fannie Mae and Freddie Mac , have had to raise billions to cover bad bets on subprime mortgages when the housing market collapsed.

Banks overall were got hammered after Goldman Sachs slashed its earnings outlooks for five major banks, saying "Tides are not changing; more writedowns and asset sales to come."

Though many had a brief rebound on Wednesday, most financial stocks ended lower, including Citigroup, JPMorgan Chase, Morgan Stanley, Merrill Lynch and Lehman Brothers, .

For Doll, the bottom also won't come until banks that can't raise capital themselves join and do so together.

"We have to have a consolidation in the sector," he said. "We still have in this country thousands of banks. We don't need thousands of banks. Pick your favorite European country--you can count the number of banks on one, maybe two hands."

Watch the discussion with Doll and Kaminsky at left.

"That will be the sign that we have a financial system that's back on track," he added. "But there's no sign of that yet."

Still, Doll said BlackRock is cautiously buying financials, though it remains underweight on the sector. He advises caution as the sector undergoes major changes in the way it does business, particularly in light of new controls the government is likely to impose.

"People say financials are cheap," he said. "Well compared to yesterday's model, yes that's probably true. But that's gone, that model's gone, whether it's for the investment banks or the commercial banks."

"It's going to be a lot of what these firms used to do but in a less risky way, less leverage, more regulation," he said. "The price of the Fed opening the (discount) window is, 'I'm going to control and regulate your business a bit more.' All of that is yet to be sorted out, and therefore the uncertainty. That's why the stocks have been so volatile."

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