April 23 (Bloomberg) -- U.S. lenders including Wells Fargo & Co. may need another $1 trillion in capital to cushion losses as unemployment rises and borrowers fall behind on payments, KBW Inc. analysts said today.

The estimate is based on KBW’s own “stress test” of the strength of top U.S. lenders, wrote analysts led by Frederick Cannon. The government is also evaluating the ability of banks to withstand a deepening recession.

Bankers may get their first look tomorrow at results of the tests, which are being conducted on 19 of the biggest U.S. financial companies. The examinations will compel lenders to raise more capital by selling shares, converting government stakes to common stock or by seeking more taxpayer funds, according to a person familiar with the matter.

“We need to get about $1 trillion of common equity into the banks to make an independent and healthy” industry, Cannon said in an interview on Bloomberg Television. “It’s a realization that there are a lot of losses left in these portfolios.”

Investors and analysts have been debating which lenders will need the help without knowing exactly how the institutions will be judged. The Federal Reserve is scheduled to release the methods used to calculate the exams tomorrow.

Bank of America Corp. will likely pass the test, Cannon said in the report. Still, the Charlotte, North Carolina-based bank may be forced by the government to convert $15 billion to $20 billion of preferred shares into common to bolster the balance sheet, he said. The $1 trillion tally combines estimates of new investments and exchanges to common stock.

Federal Help

Bank of America has already received two rounds of federal help, with the U.S. holding $45 billion of preferred shares. The government also guaranteed $118 billion of assets and the bank raised $41.7 billion selling debt guaranteed by the Federal Deposit Insurance Corp. as part of that agency’s effort to bolster lenders. Chief Executive Officer Kenneth D. Lewis has said the matter is in the hands of regulators.

JPMorgan Chase & Co., the largest U.S. bank by market value, may seek an additional $10 billion in capital from the private market, while it moves to repay the U.S. for funds received from the Troubled Asset Relief Program, Cannon said. The New York-based company probably won’t seek to convert TARP funds into common equity, KBW said.

Cannon didn’t give an opinion on Citigroup Inc., the New York-based bank that had about $28 billion in losses last year. KBW has suspended coverage of the lender.

Wells Fargo

U.S. banks have reported more than $550 billion in writedowns and losses tied to the meltdown of the subprime mortgage market since 2007, according to Bloomberg data. Losses at both Citigroup and Wachovia Corp., which was acquired by Wells Fargo, have exceeded $100 billion. Banks have raised more than $400 billion from private investors and the government to guard against loan losses as mortgage defaults surged.

Cannon repeated his estimate that San Francisco-based Wells Fargo, the biggest home lender during the first quarter, will have to raise as much as $25 billion in new capital and $25 billion to repay government investments.

Wells Fargo Chief Financial Officer Howard Atkins said in television interviews yesterday on Bloomberg Television and CNBC that he didn’t know where Cannon was getting his numbers and that the analyst was “entitled to his opinion.”

Goldman Sachs

Goldman Sachs Group Inc., the most profitable securities firm before converting to a bank last year, will probably pass the government exam and win permission to repay the U.S. for $10 billion in TARP aid received in October, KBW said. Morgan Stanley, which also converted to a bank last year, has “substantial” cash positions and probably won’t need further capital, according to Cannon.

PNC Financial Services Group Inc., which slashed its dividend 85 percent in March, may need an additional $5 billion in capital, while SunTrust Banks Inc. will probably need to convert $2 billion in TARP funds to common shares, Cannon said.

PNC CEO James Rohr said in an interview today the bank doesn’t need capital and has sufficient liquidity because the bank is mostly funded by customer deposits. Barry Koling, a spokesman for SunTrust, declined to comment on the report.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

Last Updated: April 23, 2009 15:49 EDT