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Zurich: Banks may need to raise as much as another $140 billion of capital, said Credit Suisse, which estimated that the US banking crisis could potentially result in $650 billion in total credit-related losses, of which only 40 per cent has been revealed so far.
"From an investment perspective, it would be too early to overweight financials given the need for maybe another $140 billion of capital raising as well as a potentially negative feedback loop from the economy," the brokerage wrote in its global equity strategy note.
Credit Suisse said that of the $650 billion loss expected, $390 billion could pertain to lending institutions that may need to raise capital against this. Banks have raised about $160 billion so far, it noted.
With lending conditions set to remain tight for low quality borrowers, the brokerage said it recommended remaining "underweight" on low free-cash-flow yielding companies with sub-investment grade credit ratings.
"Much of the last 30 years has been characterised by declining household spending/real GDP growth volatility as financial innovation and the ability to leverage has helped to smooth out the bumps," the brokerage noted.
"With the economy now de-leveraging and financial innovation stalling, the economy looks more prone to external shocks."
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