U.S. banks will need about $130 billion in capital this year -- for the weaker banks to fill shortfalls and the stronger ones to repay government rescue funds, analysts at Goldman Sachs said, ahead of a release of banks' stress test results due later Thursday.
The results of the government's stress tests of the top 19 U.S. banks will show which banks need to raise capital to bolster their balance sheets should the economy weaken further in the years ahead. Results are expected to show about half the banks need more capital.
Goldman analysts said their total capital need estimate for banks include $100 billion for weaker banks that need to raise capital to plug holes, and $30 billion for banks that may raise capital to repay funds from the Treasury's Troubled Asset Relief Program.
U.S. Treasury Secretary Timothy Geithner, in an opinion piece in the New York Times on Thursday, said he expects banks will pay back more than the $25 billion of government rescue funds that he had previously estimated.
Geithner also wrote that recently completed bank stress tests applied "exacting" loss estimates and conservative earnings estimates, an apparent rebuff to critics who have questioned whether the tests are tough enough.
Goldman analysts said bank stocks were now "moving to the next phase."
"Investors are now looking to diluted, normalized, and discounted earnings with the assumption that stress test induced capital raises are both successful and credible and therefore banks will be able to absorb the losses to come," the analysts said. They upgraded Capital One Financial Corp to "buy," and Fifth Third Bancorp and American Express Co to "neutral."
The analysts downgraded SunTrust Banks Inc and Comerica Inc to "sell," and cut its rating on KeyCorp to "neutral."
(Reporting by Tenzin Pema in Bangalore; Editing by Himani Sarkar)