Four Largest US Banks Earnings Outlooks Slashed

Four largest U.S. banks' outlooks slashed: Oppenheimer
Wed Mar 26, 2008 1:22am EDT
By Jonathan Stempel

NEW YORK (Reuters) - The earnings outlooks for the four largest U.S. banks have been slashed by Oppenheimer & Co analyst Meredith Whitney, who said there is "no clear end in sight" to downward pressure on the sector's profits.

In a report late Tuesday, Whitney said Citigroup Inc the largest U.S. bank by assets, might lose $1.15 per share in the first quarter, four times her prior forecast for a 28 cents per share loss. She expects the bank to lose 15 cents per share in 2008, after earlier seeing profit of 75 cents per share.

Whitney in October correctly predicted that Citigroup would cut its dividend and raise $30 billion of capital.

The analyst on Tuesday also lowered her first-quarter profit per share forecasts for Bank of America Corp to 35 cents from 92 cents, for J.P.Morgan Chase & Co to 70 cents from 86 cents, and for Wachovia Corp (WB) to 55 cents from 78 cents.

She cut her 2008 profit per share forecasts to $3.25 from $3.65 for Bank of America, to $2.90 from $3.20 for JPMorgan, and to $2.70 from $3.05 for Wachovia. The new forecasts are below analysts' average forecasts compiled by Reuters Estimates.

"Despite cutting estimates for financials by over 30 times since November, we are confident this will not be our last reduction in 2008," Whitney wrote. "As key mark-to-market indices trend lower, the housing market worsens, and the U.S. consumer comes under increasing pressure, we anticipate further downside to both estimates and stock prices."

She added: "We anticipate the current credit cycle to be the worst in generations."

The analyst left her profit per share forecast for Wells Fargo & Co (WFC.N: Quote, Profile, Research), the fifth-largest U.S. bank, unchanged at 55 cents for the first quarter and $2.15 for the year.

Whitney expects Citigroup to suffer $13.12 billion of write-downs in the first quarter, on top of $18.1 billion of write-downs and costs tied to subprime mortgages in the fourth quarter.

The analyst said the bank's first-quarter write-downs might include $9 billion for collateralized debt obligations, $1.97 billion for commercial mortgage securities, and $2.15 billion for "leveraged" loans used to fund corporate buyouts.

She said Bank of America might suffer $4.29 billion of write-downs, including about two-thirds from CDOs.

JPMorgan might suffer $2.83 billion of write-downs, with nearly half from leveraged loans, while Wachovia faces a possible $1.53 billion of write-downs, with about half tied to commercial mortgages, she said.

Whitney rates Citigroup "underperform," and the other three banks "perform." These reflect how shares may perform relative to the Standard & Poor's 500 .SPX over 12 to 18 months.

In Tuesday trading, shares of Citigroup closed at $23.42, Bank of America at $40.97, JPMorgan at $46.06 and Wachovia at $30.04. The shares are down a respective 55 percent, 21 percent, 5 percent and 47 percent since last March 26. The S&P 500 is down 6 percent over that time.

(Editing by Tomasz Janowski)