UBS Echoes Meredith Whitney: More 2009 Bank Losses (CMA, FHN, FITB, KEY, MI, RF, ZION, BAC, WFC, JPM)

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UBS has a research report out for the banking sector, and the report may take away some thunder from those who are hoping that banks will return to profits sooner rather than later.  This estimates that large banks are likely to report losses in the fourth quarter and next year.  It also notes that many banks need to cut their sacred dividends even further.  Most of these banking stocks are trading lower today.

UBS analyst Matthew O’Connor is looking for the loss cycle incommercial loans to get worse.  UBS cut 2009 earnings estimatessharply.  The cuts were for more than half for those banks stillexpected to run at profitable levels.  UBS nowexpects 7 of the 16 large banks covered in its report to post full-year losses. Thenew earnings forecasts for 2009 are now on average about 60% below theconsensus estimates.

The list of banks UBS now expects to lose money for in 2009 areComerica Inc. (NYSE: CMA), First Horizon National Corp. (NYSE: FHN),Fifth Third Bancorp (NASDAQ: FITB), Keycorp (NYSE: KEY), Marshall &Ilsley Corp. (NYSE: MI), Regions Financial Corp. (NYSE: RF) and ZionsBancorp (NASDAQ: ZION).

Bank of America Corp. (NYSE: BAC), Wells Fargo (NYSE: WFC) and JPMorganChase (NYSE: JPM) were among the banks still expected to turn a profitnext year, albeit at much lower levels.

UBS also noted that most banks will likely cut their dividends before the cycle turns.  Bank of America Corp. (NYSE: BAC), Marshall & Ilsley (NYSE: MI),SunTrust Banks Inc. (NYSE: STI) and Zions Bancorp. (NASDAQ: ZION) are the most at risk for dividend cuts.

UBS is now looking for a severe credit cycle in commercial andcommercial real estate.  Commercial loan losses are now targeted at 2%from 1.5%, and peak credit card losses are now targeted at 9% ratherthan 8%.  Loan loss reserve builds are now expected to reach 2% to 2.5%of assets by the middle of 2009 rather than a prior target of 1.7%.

UBS now expects bank revenues to decline from lower net interestmargins.  That would come from continued competition in attracting newdeposits at the same time as trading and capital market revenues arelower.  The weak economy is also expected to further crimp the servicefees.

It looks like all of the major banking stocks are trading lower today.

Jon C. Ogg
December 11, 2008