NEW YORK (Bloomberg) - Citigroup Inc. and Marshall & Ilsley Corp. were among the worst performing stocks in the Standard & Poor's 500 Index this year, dragged down by souring commercial and residential property loans that may extend declines into 2010.

Marshall & Ilsley tumbled 60 percent through yesterday, the index's biggest drop, according to data compiled by Bloomberg. Huntington Bancshares Inc. fell 52 percent and Citigroup dropped 51 percent and Zions Bancorporation declined 48 percent. Overall, banks accounted for seven of the 10 worst performers in the S&P index.

"The problem is primarily capital, dilution and credit," said Gary Townsend, president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. "There're still questions that remain with respect to the solvency of many banks, and those undoubtedly are the ones in which investors have the greatest concerns."

US banks are struggling to stem losses on commercial real estate loans as the worst recession in 60 years makes it difficult for business owners to pay off debts. Regulators have closed 140 lenders this year, the most since 1992, and analysts predict 1,000 banks may fail in the next few years.

Marshall & Ilsley, the biggest bank in Wisconsin, is buckling under soured housing and construction loans in Florida and Arizona, among states with the highest foreclosure rates this year. The Milwaukee-based lender has reported four straight quarterly losses, and said it set aside as much as $578.7 million to cover bad loans in the third quarter.

"The worst of Arizona and Florida problems are now behind them," Tony Davis, an analyst with Stifel Nicolaus & Co., said in a December 30 interview. "Having taken $160 million in charge- offs in their correspondent banking division, the heavy lifting in that portfolio probably has also been completed."

At Salt Lake City-based Zions, about $1.1 billion, or 59 percent, of $1.8 billion in total non-accrual loans in the third quarter were in commercial real estate, the lender said in October.

"We feel a whole lot more comfortable heading into 2010 than we did heading into 2009," Zions spokesman James Abbott said in an interview December 30. Zions CEO Harris Simmons bought $2 million in shares in the past four months, Mr. Abbott said.

Calls to Marshall & Ilsley spokeswoman Sara Schmitz, Huntington spokeswoman Maureen Brown, and Citigroup spokeswoman Susan Thomson were not returned.