bank needs new capital on housing dip

Meredith Whitney, chief executive officer of Meredith Whitney Advisory Group LLC. Photographer: Jonathan Alcorn/Bloomberg

U.S. banks need more capital to withstand a renewed drop in the housing market, according to analyst Meredith Whitney.

Banks aren’t prepared for a “double-dip” in housing, which “it looks like we are having,” Whitney said today on Bloomberg Radio’s “The Hays Advantage.”

“They need higher capital,” said Whitney, chief executive officer of Meredith Whitney Advisory Group in New York.

Sales of new homes in July dropped to a record low and purchases of existing houses plunged 27 percent, the most in records going back four decades, according to reports from the Commerce Department and National Association of Realtors this week. U.S. home prices fell 1.6 percent in the second quarter from a year earlier, the Federal Housing Finance Agency said earlier this week.

The housing market “has generally remained depressed,” with an “overhang” of foreclosed and vacant homes and “difficulties” getting mortgage financing, Federal Reserve Chairman Ben S. Bernanke said today in remarks to central bankers from around the world at the Kansas City Fed’s annual monetary symposium in Jackson Hole, Wyoming. Bernanke said the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery.

Whitney said the economy is reacting from “chronic structural problems” including high unemployment that are unlikely to be addressed through monetary policy.

“There’s nothing more important to the economy than unemployment,” said Whitney, who started her firm after predicting Citigroup Inc.’s dividend cut in 2007. “You have to make structural changes in the economy to address that problem. They’re not monetary issues.”

To contact the reporter on this story: Craig Trudell in New York at ctrudell1@bloomberg.net