Foreclosures May Blunt Treasury Aid, Whitney Says: Chart of Day

Oct. 15 (Bloomberg) -- Surging mortgage foreclosures may hurt banks even after the U.S. Treasury bolsters their capital by investing $250 billion, according to Meredith Whitney, an Oppenheimer & Co. analyst.

``Credit and earnings power'' are the main issues facing the banking industry, Whitney wrote in a report today. Loan write- offs and other costs may increase more than companies anticipate, while revenue may be disappointing because ``asset bases'' have declined.

The CHART OF THE DAY, derived from the report, shows the Mortgage Bankers Association's historical data on foreclosures along with her projections. She estimated that the percentage of foreclosed loans on Sept. 30 was more than double an earlier peak of 1.51 percent at the end of 2002's first quarter.

Whitney projected that the rate will increase by a total of 1.2 percentage points through the end of next year, when it will reach 4.25 percent, as the chart illustrates. The latter figure is more than four times the 0.97 percent average between 1979, when the association's data begins, and 2006.

The banking industry is ``at least several quarters away'' from stabilizing, she wrote, and the Treasury's proposal to buy preferred shares of banks ``is not such a panacea solution that we change our cautious view.''

Citigroup Inc. and Wells Fargo & Co. have ``underperform'' ratings from the Oppenheimer analyst. She sees Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley keeping pace with the Standard & Poor's 500 Index in the next 12 months to 18 months.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net