Deutsche's Mayo Says Bank Loan Losses in '09 Will Exceed Levels Set During Great Depression
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One of Deutsche Bank's top analysts, Mike Mayo, issued a sobering research note this morning, predicting that loan losses in the banking sector during '09 will exceed the peak of losses during the Great Depression.
Deutsche moved its estimate for this metric from 3% to 3.5%, citing "more concern about loan quality, especially cards, home equity, and construction... and worse unemployment." The firm also issued a stress test losses estimate of 5.5% (assuming the government planned stress), which implies yearly losses of $250-$400 billion on the banking industry's $7 trillion in loans.
Mayo's report also highlights that the sharpest rate of losses came from construction and development loans, which fell from 2.7% in Q3 to 5% in Q4.
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