U.S. banks may have to raise as much as $300 billion to cover growing credit losses and regulators' future capital requirements, according to a Deutsche Bank AG analyst.
At least $100 billion might be needed to rebuild Tier 1 common equity, a gauge regulators use to measure a bank's ability to withstand losses, the analyst Matt O'Connor wrote in a report that was issued Tuesday.
Future Tier 1 requirements may climb close to 10% of assets, which would require an additional $100 billion to $200 billion of capital, according to the report.
"We expect continued weak bank results in the second quarter as credit pressures continue," said O'Connor, who has made two "buy" recommendations among the 16 lenders covered by Deutsche Bank: Regions Financial Corp. in Birmingham, Ala., and U.S. Bancorp in Minneapolis.
U.S. banks have already raised about $507.1 billion since the financial crisis began in 2007, according to data compiled by Bloomberg.
The Federal Reserve's stress tests of the nation's biggest lenders this spring forced 10 of them to raise an aggregate $75 billion as a cushion against a worsening recession.
The U.S. economy will shrink this year by the most since 1946, according to a Bloomberg survey of 61 economists last month. The unemployment rate rose to 9.5% in June, the highest since August 1983.
Of the 16 lenders covered by Deutsche Bank, Wells Fargo & Co. will have the "strongest quarter," O'Connor wrote.
The San Francisco banking company probably benefited from "robust mortgage and trading results as well as solid balance sheet and net-interest-margin trends," according to the analyst.
Wells Fargo is the fourth-largest U.S. bank by assets, behind Bank of America Corp. in Charlotte and the New York banks JPMorgan Chase & Co. and Citigroup Inc. Deutsche Bank does not cover JPMorgan Chase or Citigroup.
Cleveland's KeyCorp, Marshall & Ilsley Corp. in Milwaukee, Atlanta's SunTrust Banks Inc. and Zions Bancorp. in Salt Lake City will probably have the weakest quarters, O'Connor wrote.
Banks will probably report losses for the second half of this year and much of 2010, according to the report.
O'Connor said "normalized" earnings will take longer to achieve than most analysts predict, and the eventual level of normalized profit is likely to be lower than current estimates, he said.
"This is being driven by consumer losses remaining elevated longer than expected, commercial and related losses possibly reaching to 10% to 11% in 2009 to 2011," O'Connor wrote.