Filed under: Analyst upgrades and downgrades, Forecasts, Bad news, Industry, Citigroup Inc. (C), Merrill Lynch (MER)

Almost every day some researcher cuts earnings estimates or rating for some set of banks and brokerages. Late yesterday, Oppenheimer chopped its view for Merrill Lynch (NYSE:MER) and UBS (NYSE:UBS). Earlier in the day the same analyst had cut several banks, including Citigroup (NYSE:C).

Among other things Oppenheimer sees writes-offs at Merrill running up to over $6 billion in the first quarter. Reuters reports, “The earlier cuts fanned fears that credit and housing crises will crimp earnings at banks and brokerages for a longer period of time.” Now the market can face more of that anxiety.

But, the trouble will quickly turn from earnings cuts to the issue of whether US financial firms have enough capital. Late last year, several major banks and brokerages raised tens of billions of dollars. The hope in the market was that most write-offs were over. The new cash brought in would be enough.

Now, it is clear that financial institution losses are actually going up and not down. Executives from the firms will be back in the markets. There are probably only two alternatives to the issue. One is for the Fed to dump more taxpayer money into the system which gives it some “ownership” in the companies facing problems. The other is to turn to sovereign funds in the Middle East and Asia.

Sovereign funds got burned in their first set of investments in banks and brokerages. They are going to want a bigger piece of the pie this time. Current shareholders may be diluted. And, that could send shares down even further.

Douglas A. McIntyre is an editor at 247wallst.com.

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This entry was posted on Sunday, March 30th, 2008 at 6:09 am and is filed under Industry News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.