Oppenheimer Cuts Earnings Outlook for Major U.S. Banks

An Openheimer & Co group of analysts led by Meredith Whitney cut their earnings outlook for major U.S. banks, saying the current credit crisis is not close to ending.

The crisis which has resulted in big write downs for many of the largest U.S. institutions will extend into 2009 and even beyond.

We believe the current credit crisis is far from over, Whitney, Kaimon Chung and Joseph Mack wrote in a note to clients on May 19. In fact, we believe what lies ahead will be worse than what is behind us.

They said that the losses from banks will come in the form of write-downs or reserve builds, resulting in revenue reversal from years worth of inherently flawed underwriting.

Oppenheimer predicts banks will write off over $170 billion of additional reserves by the end of next year.

New and unforeseen strains on consumer liquidity will push more consumers into precarious credit positions and cause consumer credit losses to be far worse than what is currently estimated, even by the most draconian of investors, they stated.

Oppenheimer dropped her earnings expectations in 2008 for Bank of America, Citigroup, JPMorgan Chase, Wachovia, and Wells Fargo.

They list Citigroup shares as underperform. Bank of America, JPMorganChase and Wachovia are listed as perform.