Meredith Whitney Says Stock Futures to Fall

November 26th, 2008

U.S. banks to write-down about $44 billion in Q4: Whitney

(Reuters) – U.S. banks will incur about $44 billion in write-downs and loss provisions in the fourth quarter on risky exposures and loans, and much of the Treasury capital will be diverted to plug holes on their balance sheets, prominent banking analyst Meredith Whitney said.

Capital raises through the Troubled Asset Relief Program (TARP) will not spur meaningful growth for the industry, she said in a research note titled “Gobble Gobble.”

Pressures on capital due to credit-rating downgrades on risky assets will make getting capital back into the system that much more difficult, she added.

The write-downs will erode a chunk of the recent capital raises, Whitney said, adding that rating downgrades will pressure regulatory capital ratios and require banks to hold more capital against these assets.

New accounting changes slated to be in effect in late 2009 will also require the banks to hold onto capital in the form of reserves, she said.

Accounting rule changes effective over the next year will force banks to post an additional $25 billion in loss reserves over the next 12 months, the Oppenheimer & Co analyst said in a note to clients.

“We argue that the effects of these rule changes will require the banks to use up a meaningful portion of their TARP capital to build reserves for credit card losses in 2009.”

This leaves less capital readily available to lend to consumers, which was the original intent of the TARP, Whitney said.

She noted that banks under her coverage had accessed over $110 billion of TARP capital during the fourth quarter.

Whitney cut her 2008 and 2009 earnings estimates on U.S. financial institutions by 17 percent on average to reflect net write-downs, deteriorating credit, preferred dividends for TARP and other capital raises.

(Reporting by Neha Singh and Amiteshwar Singh in Bangalore; Editing by Himani Sarkar)