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Jan 26 (Reuters) - The top 50 U.S. banks need to raise another $200 billion of common equity to absorb shocks from bad mortgage loans and other assets, Goldman Sachs said in a report.
Analyst Richard Ramsden said the big U.S. banks face the risk of becoming the “new utilities” as increased regulation and higher capital requirements pressure their return on equity.
He expects consumer and residential real estate problems to accelerate in 2009, increasing capital risks for the banks.
Analyst Ramsden re-launched his coverage on U.S. large-cap banks with a cautious view and warned investors to avoid Citigroup Inc (C.N) stock because of its unclear equity value and lack of clarity on its core earnings power. [ID:nWNAB3460]
Ramsden, who reinstated Citigroup with a “sell” rating, said the third-largest U.S. bank by assets must absorb $29 billion in pre-tax losses before the loss sharing by the government kicks in.
Citigroup’s market value was about $19 billion based on Friday’s close of $3.47, according to Reuters data.
“There is not enough equity at Citigroup to absorb those kinds of losses in the near term without further recapitalization,” analyst Ramsden said.
The brokerage reinstated PNC Financial Services Group (PNC.N), Wells Fargo (WFC.N) and Morgan Stanley (MS.N) with a “neutral” rating and resumed JPMorgan Chase & Co (JPM.N) by adding it to the Americas conviction buy list.
The brokerage cut Bank of America (BAC.N) to “neutral” from “buy” and reduced its price target to $7 from $35. It also lowered U.S. Bancorp (USB.N) to “sell” from “neutral” and added it to Americas conviction sell list.
The analyst said he expects U.S. commercial banks to cut dividend in the first half of 2009 and continue to raise capital, but added that the theme would be “stronger banks raising capital to execute take-unders of weaker banks”. (Reporting by Supantha Mukherjee in Bangalore; Editing by Himani Sarkar, Anil D’Silva)