Wednesday's Headlines: US banks still sputtering despite massive crisis aid

Despite massive injections of capital and cheap loans in the past three years to help Wall Street recover from the financial crisis, US banks are still suffering due to general weakness in the US economy, Bloomberg reports.

Financial assistance from the Federal Reserve and US government initially helped banks boost their profits and maintain jobs, but now Wall Street's health is threatened. Economic weakness has capped borrowing by consumers and companies, while low interest have cut into earnings.

"The political class is fixated on how the banking system caused the problem in the first place and therefore how it will have to cure it in the future -- that if you get the banks working again the economy works," Robert B. Albertson, chief strategist at Sandler O'Neill & Partners tells Bloomberg. "It drives me into silly laughter. It's the other way around."

Bloomberg points out that several banks have cut their earnings expectations, and that the KBW bank stock index has lost 21 percent in the past month, sharply underperforming the wider market.

Other News:

UBS to keep 2,000 positions in Connecticut after $20 million "forgivable" state loan. [Bloomberg]

Bank of America credit default swaps hit new record as investors fret over its credit-worthiness. [Wall Street Journal]

Fed input on Capital One deal with ING Direct to show how Dodd Frank affects banks. [DealBook]

Judge says Deutsche Bank National Trust Company lawsuit against FDIC over WaMu mortgages must continue. [Reuters]

European bank layoffs pass 40,000 in the past month alone. [BusinessWeek]

Historic JP Morgan headquarters at 23 Wall Street seeks retail tenants after standing empty for years. [,New York Times>]

NY attorney general kicked off national mortgage abuse investigation after opposing deal. [Reuters]

Boutique investment bank Gleacher & Co. ends stock-trading foray after failures. [Wall Street Journal]

State Street, JP Morgan Chase made profits after crisis on $200 billion Fed loan for money-market mutual funds. [Bloomberg]

Credit Suisse India hires 11 in equities, fixed income, investment banking. [Wall Street Journal]