S&P cuts outlook on some banks, other financials

"Credit quality is deteriorating rapidly, particularly for home equity and credit card loans," wrote equity analyst Stuart Plesser. "We believe that high gasoline prices coupled with rising unemployment levels and steadily falling home prices will lead to significantly higher charge-offs in 2008 versus last year."

Though commercial loan growth has remained solid, Plesser is concerned that credit may deteriorate in this loan category as well.

"Due to ongoing writedowns, some banks will likely need to raise additional capital, which we believe will become more difficult as the year progresses and probably come at the expense of existing shareholders," Plesser said.

Of the diversified banks, which include Comerica Inc., U.S. Bancorp, Wachovia Corp. and Wells Fargo & Co., U.S. Bancorp is the only bank in the subindustry with a "Buy" rating.

"We believe this bank is the best capitalized and most conservative lender in our coverage universe," Plesser said.

U.S. Bancorp shares lost 19 cents to $27.70 in afternoon trading. Shares hit a 12-month low of $27.31 earlier in the session.

Of the diversified financial services group, which includes JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. Plesser favors JPMorgan and rates the stock a "Buy," saying that it is better capitalized than its peers.

Overall, Plesser said the major diversified financial services firms are better positioned than in the past to weather an economic cycle as regulatory easing has allowed them to gather more services under one roof. "We see the key challenge for larger companies as being the ability to build optimal business mixes that can sustain superior revenue and earnings growth," he said.

JPMorgan shares lost $1.10, or 3.2 percent, to $32.83 in afternoon trading. Shares hit a 52-week low of $32.33 earlier in the session.