The last time I recommended a bank to anybody was last August. And it was a Canadian Bank – Bank of Nova Scotia (BNS). Once upon a time – not that long ago – banks were solid, safe investments that generated a steady stream of income through the dividends they issued.

As their share prices declined, their dividend yields went in the opposite direction. That undoubtedly attracted investors who thought such high dividends would put a floor under how much share prices could drop. In the meantime, these investors could just sit tight and collect dividend checks earning them six, seven, or eight percent interest on their investment.

But it hasn’t turned out that way. Both the floor and yields proved ephemeral. Guess which of the companies in the one-month chart below have cut their dividends?

KeyCorp (KEY) (the dark green line) – 50 percent down in the last month – is one. Citibank (C) (the brown line) – 10 percent down – is another. Washington Mutual (WM) (the pink line) –35 percent down – is a third. And Fifth Third Bancorp (FITB) (the red line) – 50 down – is a fourth.

And all the others in the chart are on the chopping block for future possible cuts. Well, all except the Bank of Nova Scotia. The shares of this Canadian bank aren’t doing great, but it’s doing much better than most U.S. banks.

If you’re waiting for banks to bottom, you’re playing a dangerous game. Many are raising capital in expectation of future write-offs. The rapid rise of foreclosures is increasing banks’ bad debt. And, whenever the market falls precipitously, it’s usually led by financials. Banks are leading the market down … not showing it the way up.

If the worst is really behind banks (I can’t tell you how many times I’ve heard that), what’s coming up is pretty damn close. If I were you, I’d stay away.

Source: False Hope and False Bottoms Still Define Banks