Jan 14 (Reuters) - Wells Fargo (WFC.N) may need to raise $10 billion in common equity and the sustainability of its dividend could be in question, an Atlantic Equities analyst said and downgraded the stock to "underweight" from "neutral."
Analyst Richard Staite, who believes Wells Fargo's core capital ratios have deteriorated significantly as a result of the Wachovia acquisition, said he prefers JPMorgan Chase & Co (JPM.N) as it has stronger capital ratios and trades at a much lower valuation.
Shares of Wells Fargo were down more than 6 percent at $22.85 in morning trade on the New York Stock Exchange.
The bank has so far avoided the worst problems in the current credit cycle, but with accelerating decline in house prices in California and surge in unemployment, the company could suffer significant loan losses in 2009, Staite said, adding that Wells Fargo's near-term earnings could disappoint.
"Wells Fargo has been regarded as a safe haven during this downturn however earnings weakness combined with capital concerns may cause this premium to erode," Staite wrote in a note to clients. (Reporting by Sweta Singh in Bangalore; Editing by Himani Sarkar)