U.S. banks may need $65 bln new capital: Goldman
BANGALORE (Reuters) - U.S. banks may need to raise $65 billion of additional capital to cope with mounting losses from a global credit crisis that will not peak until 2009, Goldman Sachs & Co (GS.N) analysts said on Tuesday.
The new capital would be on top of $120 billion already raised by the industry, analysts led by Richard Ramsden said.
"Banks will not turn until a peak in credit costs is in sight," the analysts wrote. "Moreover, weaker banks are unlikely to benefit from consolidation as bank deals always slow when credit is deteriorating and larger banks are hamstrung by their own problem assets as well as accounting requirements."
Goldman said it lowered its price targets for 14 banking companies and cut its 2008 earnings-per-share forecasts for 11.
Among the banks for which Goldman cut both are BB&T Corp (BBT.N), PNC Financial Services Group Inc (PNC.N), SunTrust Banks Inc (STI.N), U.S. Bancorp (USB.N) and Wells Fargo & Co (WFC.N).
Goldman also lowered its price targets for Wachovia Corp WB.N and Washington Mutual Inc (WM.N), and its earnings outlook for Bank of America Corp (BAC.N).
In afternoon trading, the 24-member KBW Bank Index .BKX was down 3.2 percent, while the 50-member KBW Regional Bank Index .KRX dropped 2.6 percent. These contributed to declines in broader market indexes as well.
Zions Bancorp (ZION.O), a Salt Lake City-based bank, fell as much as 12.8 percent after projecting higher nonperforming assets and saying weakness in residential construction and land values in the U.S. Southwest should persist into 2009. Goldman also cut Zions' price target and earnings forecast.
Lenders have raised capital to help combat a surge in problem loans. Among those to raise the most were Citigroup Inc (C.N), Wachovia, Washington Mutual and National City Corp NCC.N, which this year each raised at least $7 billion.
Problem loans were once concentrated in subprime mortgages. They have, however, been spreading to other types of lending, including prime mortgages, home equity loans, commercial real estate and construction loans, auto loans and credit cards.
BANKS SET ASIDE $86 BILLION
The Goldman analysts estimated that U.S. banks and thrifts have set aside $86 billion for loan losses in the three quarters since the credit crisis began.
They said the weak housing market drove the deterioration and that home prices will likely keep falling all year. It expects credit losses to peak in the first quarter of 2009, when the rate of charge-offs may be 46 percent higher than a year earlier.
Worries about credit losses have driven down banks' share prices. This has caused paper losses for many investors who infused capital into the industry, including many private equity firms and sovereign wealth funds.
Much of this capital has come from offerings of common stock or convertible preferred shares. Goldman said further attempts to raise capital may prove even more costly for shareholders.
"Capital raising becomes harder," the analysts wrote. "Only four out of 42 deals we track are in-the-money so far. This will make the next round of deals harder and more expensive."
Through Monday, the KBW bank and regional bank indexes were down a respective 23.7 percent and 21 percent this year. The Standard & Poor's 500 index .SPX was down 7.4 percent.
(Editing by Andre Grenon, Phil Berlowitz)
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