U.S. banks will have to raise fresh capital in 2009, and a sharp increase in credit-rating downgrades on mortgage-related securities will lead to further stresses on the companies' capital, according to prominent banking analyst Meredith Whitney.
"From July 2007 to date, over $5 trillion worth of securities have been downgraded, but our concern here is that the pace of downgrades has only accelerated through 2008," the Oppenheimer analyst wrote in a research note dated January 6.
"Capital ratios will be meaningfully lower in the fourth quarter (of 2008) versus post TARP pro forma levels," she said.
Since the summer of 2007, Wall Street has been hammered by a sharp pullback in debt markets, which began with mortgage woes and escalated into a credit crisis, slowing economic activity around the world.
The U.S. Treasury's $700 billion Troubled Asset Relief Program (TARP) was established in October 2008 primarily as a means to recapitalize banks and take bad assets off their books to help support creaking credit markets.
Apart from the more than $40 billion in fourth-quarter write-downs and loss provisions the analyst expects from the group of bank stocks under her coverage, Whitney also anticipates "capital strains to become apparent from ratings change pressures."
JPMorgan Chase (JPM.N) will have the largest increase in fourth-quarter 2008 loss provisions at $6.2 billion, compared with $2.5 billion in the year-earlier period, the analyst said.
Whitney, who maintained a cautious stance on the U.S. banking sector, expects Bank of America Corp's (BAC.N) fourth-quarter loss provision will be $6.7 billion, compared with $3.3 billion a year earlier.
Citigroup Inc's (C.N) provision for the period will be $7.9 billion, while Wells Fargo & Co's WFC. will be $4.4 billion, the analyst said.
(Reporting by Ramya Dilip in Bangalore; Editing by Pratish Narayanan)