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Monday, Oppenheimer put out a report discussing regional banks. They said that even with the stocks 40% below 2006 levels, the stocks might not reach those heights again.

The main reason? Dilution

Oppenheimer rightly points out that while there might be plenty of recovery ahead, the capital raises over he past 18 months have caused an explosion in shares outstanding.

Oppenheimer discussed regional banks, so I'll show the "money-center" big guys. Unlike most of the smaller regionals, banks like these have more diversified revenue (i-banking, prop trading, etc), so the comparison is not apples-to-apples.

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Banks still have huge assets on their balance sheets, many of which yield pretty handsome returns. That doesn't help common stockholders, who now must split the pie among many new investors...

With all those new shares outstanding, the per share earnings power of these banks is handicapped forever ...

(Click to enlarge)

Disclosure: No positions

Source: The Dilution Problem With Regional Banks