Mike Mayo says $400 billion in credit losses for banks

http://www.cnbc.com/id/21753862/for/cnbc
Deutsche Bank's Mike Mayo estimates as much as $400 billion in credit losses for banks
updated 9:05 a.m. ET, Mon., Nov. 12, 2007
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NEW YORK - Bad mortgage debt may cost banks as much as $400 billion by the time the credit crisis has run its course, a widely tracked Wall Street analyst wrote in a research report Monday.
The major banks have recorded $43 billion in charges stemming from deteriorating mortgage credit quality so far. Plus, they have warned that roughly $25 billion in additional charges are forthcoming.
Deutsche Bank analyst Mike Mayo suggested they are perhaps halfway finished. Eventually, the big banks will write off $100 billion to $130 billion, Mayo estimates.
Worldwide, total losses from "subprime" mortgage credit _ or home loans issued to people with spotty credit histories _ could total $300 billion to $400 billion, Mayo said.
The costs are rooted in this year's breakdown of credit markets. Stung by mounting payment defaults on home loans, the Wall Street investment banks that finance much of the mortgage industry pulled their money out earlier this year.
This left dozens of cash-starved mortgage lenders scrambling to raise cash by selling home loans into a market with few buyers. The market value of many types of mortgage debt plunged, forcing banks to adjust their balance sheets to reflect investments that are worth less.
These charges have cost two Wall Street chief executives their jobs and forced many banks to slim down their mortgage businesses, leading to thousands of layoffs. Numerous hedge funds have imploded, and many homebuilders blame the distress in the mortgage industry for prolonging the housing slump.
Deutsche Bank's Securitization Research group estimated that among the $1.2 trillion in "subprime" mortgage loans outstanding, 30 percent to 40 percent could reach default. This would force losses of $150 billion to $250 billion.
Plus, the bonds and securities that investment banks layered with subprime loans could lose as much as 80 cents on the dollar, Mayo said.