UPDATE 3-Oppenheimer's Whitney cuts Wachovia on "bleak" outlook
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BANGALORE, July 15 (Reuters) - Wachovia Corp's WB.N earnings outlook has dramatically diminished and prospects for shareholders are bleak, said influential Wall Street analyst Meredith Whitney, who downgraded the stock to "underperform."
Wachovia shares, which have slumped 75 percent this year, fell as much as 20 percent in morning trade on Tuesday following the downgrade.
Oppenheimer analyst Whitney's report comes a day after the shares of major U.S. banks plunged amid concerns over stability in the sector and the future of the mortgage market.
The analyst, who correctly predicted a dividend cut at Citigroup (C.N: Cotización) last year, said U.S. banks' valuations on mortgage-related assets were "too high" and need to be quickly addressed to stabilize the financial markets.
Whitney, who slashed her rating on Wachovia from "perform," said capital was the main concern for the fourth-largest U.S. bank.
With a shrinking portfolio, Wachovia simply cannot cut costs fast enough to reduce capital erosion, she wrote in a note to clients. She expects Wachovia to have reduced its portfolio by $50 billion in the second quarter.
Whitney, who expects Wachovia to post losses in 2008 and 2009, said total provision for loan losses in the second quarter will be $9.5 billion. The bank will post negative loan growth in 2008 and 2009, she said.
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