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All Eyes On Bank Of America

Banks are again weakening midday, with all eyes on Bank of America .

What's up?

The same worry as yesterday: There is noise out of Washington that TARP II will be heavily dilutive, despite earlier reports that the Obama administration might settle on a hybrid bank approach that would involve minimal dilution.

Traders are concerned that the feds will put more money into the banks, potentially wiping out the equity shareholders, particularly of companies like Citi and Bank of America. In the most dire of predictions, effective nationalization is also being mentioned for some.

Will this happen?

Bears have argued for months that the common equity of many big banks are worthless. That's been around for a while. But now, they are worried that the preferreds may also be suspect (a la Fannie Mae and Freddie Mac ).

Also, the hope that bank earnings will stage a big recovery is being hurt by worries about increased regulation.

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