BANGALORE - IT'S not just banks that have persistently underestimated the scope of the credit crisis afflicting them. So have the Wall Street analysts paid to warn their clients what to expect.
Since the start of the year, analysts have slashed their earnings estimates on Standard & Poor's 500 financial companies by a respective 41 per cent, 28 per cent and 25 per cent for the second, third and fourth quarters, according to Lab Thomson, a Thomson Reuters research publication.
Merrill Lynch's Edward Najarian was the latest to turn more downbeat, amid mounting credit losses and growing uncertainty over banks' abilities to preserve capital and pay out dividends. He slashed his earnings estimates for 12 United States banks by an average 22 per cent for 2008 and 19 per cent for 2009.
Mr Najarian joins rivals at Credit Suisse, Deutsche Bank Securities, Goldman Sachs and Lehman Brothers among those in June to slash their outlooks for banks and project more capital raising.
Regional banks may face at least three further rounds of capital raising, Credit Suisse said.
Goldman, meanwhile, projected that US banks will raise US$65 billion (S$89 billion) of additional capital to cope with credit losses.
Bank of America , Regions Financial, SunTrust Banks, Wachovia and the investment bank and brokerage Merrill Lynch are among companies that analysts believe may need to raise more capital.
Among those to raise the most in the current cycle are Citigroup, Wachovia, Washington Mutual and National City, which this year each raised at least US$7 billion.
In afternoon trading, the S&P Financial Index was down about 2 per cent, while the 24-member KBW Bank Index was down 0.36 per cent.
Stocks in capitulation mode
Large-cap banks' stocks now appear to be in 'capitulation mode', said Merrill's Najarian. He expects bank stocks to trade below fair value in the near term as more dividend cuts and capital raises, high credit risk and an uncertain earnings outlook weigh on their share prices.
The analyst expects dividend cuts, capital raising or both at Bank of America, Regions, SunTrust and Wachovia in the year's second half, putting downward pressure on their shares.
Ladenburg Thalmann's Richard Bove, meanwhile, on June 2 said downward pressure on bank stocks is 'overwhelming', and that the catalyst to reverse this is 'unknown'.
Mr Bove, however, said that despite investor fear and uncertainty, the situation might not actually be as dire, because many lenders maintained strong cash flows and were increasing market share.
Lab Thomson, in a report this week, said that despite the downward estimate revisions, some banks could still see earnings improve in the second half of 2008, relative to poor first-half results. -- REUTERS