Banks May Burn Through TARP Quickly: Analyst

The U.S. government's recent efforts to pump extra capital into large-cap banks is likely to be eroded as they face further deteriorating credit quality and writedowns, among other things, according to Oppenheimer analyst Meredith Whitney.

Whitney cut by an average of 17% her estimates for this year and next year on Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS) and Morgan Stanley (MS) in a note Wednesday. The analyst, who gained acclaim last year for her early prediction of big trouble at Citi last year, said the cuts reflect her belief that further writedowns, deteriorating credit, preferred dividends it must pay the government for the stakes it bought through the Troubled Assets Relief Program, or TARP, and other capital raises are on their way.

Whitney estimates that the banks under her coverage will incur roughly $44 billion in writedowns and credit-related provisions this quarter alone, as asset prices continue to deteriorate. The losses will "erode" a chunk of the recent capital raises, she writes.

The large banks will also feel capital pressures "due to credit-rating downgrades on risky assets [that] will make getting capital back into the system that much more difficult," Whitney writes. Additionally, accounting rule changes related to off-balance sheet entities, set to be implemented next year, "will further cause companies to hold onto capital as well," she wrote.

Whitney does not have buy-equivalent ratings on any of the companies she covers.

Whitney says that at minimum, banks will be required to bring back off-balance sheet credit card exposures onto their books.