UPDATE 2-Large US banks' stocks in capitulation mode: Merrill
(Adds details on outlook)
June 20 (Reuters) - U.S. large-cap regional banks' stocks now appear to be in "capitulation mode" and will likely trade below fair value in the near term as more dividend cuts and capital raises, high credit risk and an uncertain earnings outlook all weigh on their share prices, an analyst at Merrill Lynch said.
Analyst Edward Najarian said he does not expect credit metrics to recover until 2010 and forecast more dividend cuts and capital raises at banks, including Bank of America Corp (BAC.N: Cotización) and Wachovia Corp WB.N, in the second half of this year.
Najarian also slashed his earnings estimates by an average of 22 percent for 2008 and 19 percent for 2009. He said the cuts were largely due to higher loan losses, as well as an increase in loan loss reserve building.
"Our higher credit loss outlook is driven by higher loss assumption in nearly all consumer and commercial loan categories ... we have especially increased our loss assumptions for residential construction loans and home equity," Najarian wrote in a note to clients.
The analyst expects the median net charge-off ratio of large regional banks to triple to 1.14 percent in 2008, while loan loss provision-to-loan ratio is expected to increase to 1.87 percent in 2008 from 0.57 percent a year ago.
Second-quarter earnings, among the large regional banks, is expected to be "especially weak" compared with prior quarters, Najarian said, adding that Bank of America and Wachovia may miss second-quarter Wall Street estimates by the greatest percentage.
He said earnings in the second quarter will likely come in a median that is 18 percent below consensus estimates mainly due to much higher net credit losses, more loan loss reserve building, and a lack of one-time Visa Inc (V.N: Cotización) related gains that helped most large banks in the first quarter.
MORE DIVIDEND CUTS Continuación...