(Adds details, background, estimate changes)
Nov 26 (Reuters) - U.S. banks will incur about $44 billion in write-downs and loss provisions in the fourth quarter, and much of the U.S. Treasury capital will be diverted to plug holes on their balance sheets, prominent banking analyst Meredith Whitney said.
Capital raises through the Troubled Asset Relief Program (TARP) will not spur meaningful growth for the industry, the Oppenheimer & Co analyst said in a research note titled "Gobble Gobble".
The write-downs will erode a chunk of the recent capital raises, Whitney said, adding that credit-rating downgrades will pressure regulatory capital ratios and require banks to hold more capital against these assets.
Since the summer of 2007, Wall Street has been hammered by a sharp pullback in debt markets, which began with mortgage woes and escalated into a credit crisis, slowing economic activity around the world.
TARP was established last month by Congress primarily as a means to recapitalize banks and take bad assets off their books to help support creaking credit markets.
However, new accounting changes slated to be in effect in late 2009 will require banks to put away a meaningful portion of their TARP capital as reserves for credit card losses instead of lending it out, which was the original intent of the TARP, Whitney said.
Accounting rule changes effective over the next year will force banks to post an additional $25 billion in loss reserves over the next 12 months, she said.
She noted that banks under her coverage had accessed over $110 billion of TARP capital during the fourth quarter.
Whitney cut her 2008 and 2009 earnings estimates on U.S. financial institutions by 17 percent on average to reflect net write-downs, deteriorating credit, preferred dividends for TARP and other capital raises.
She widened her 2008 loss forecast for Citigroup Inc (C.N) to $3.02, compared with her prior loss forecast of $2.87.
The five banks will record an aggregate write-down of about $18.8 billion, or roughly 22 percent of the aggregate TARP money raised by them, in the fourth quarter, Whitney estimated. (Reporting by Neha Singh and Amiteshwar Singh in Bangalore; Editing by Himani Sarkar;)