Shares of regional banks dropped Wednesday after a JP Morgan analyst said they needed more capital to cover risks heading into the recession.

Shares of Colonial Bancgroup shed 12 cents to $2.08, Regions Financial Corp. stock fell 26 cents to $8.44 and shares of Zions Bancorp fell 56 cents to $26.46.

Those were the three banks analyst Steven Alexopoulous noted were most at risk for needing equity in the months ahead.

"We believe common equity levels are too thin given the magnitude of the economic challenge ahead," Alexopoulous wrote.

He noted that the industry is entering the current downturn with substantially less capital than it did in the recessions of 1990 and 2001.

Also dragging down the sector was Morgan Stanley's report early Wednesday that it lost $2.37 billion during its fiscal fourth quarter on a range of losses on assets.

The New York-based firm, which is aggressively building on its new status as a bank holding company, lost $2.34 per share for the quarter ended Nov. 30. It lost $3.61 billion, or $3.61 per share, during the year-ago period when it took a $9.4 billion write-down on mortgage-related assets as the housing crisis began to spiral downward.

Alexopoulous noted People's United Financial Inc. and City National Corp. had the highest equity levels among midcap banks.

Still, shares of People's United fell 30 cents to $17.83 and City National stock dropped 45 cents to $43.25.

Shares of Synovus Financial Corp. meanwhile fell 32 cents to $7.68.

Alexopoulous downgraded Synovus to "Neutral" from "Overweight," citing the company's high exposure to residential construction lending and relatively weak earnings to absorb loan losses.

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