Bank analyst Mike Mayo, who has gained a wide following by presciently calling banks’ ills, now says loan losses may exceed those chalked up during the Great Depression, forcing nationalization of the biggest banks.
“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” says Mayo, a former Deutsche Bank analyst who now works at CSLA.
“New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”
Nationalization of banks remains a possibility because government policy remains unclear, Mayo said on a conference call after releasing his report Monday, according to Bloomberg.
Existing government efforts aimed at boosting bank capital don’t “preclude regulators from taking harsher action,” Mayo says.
“I don’t want to be a partner with the government in investing in bank stocks.”
Mayo expects loan losses to increase anywhere from 3.5 percent to 5.5 percent by the end of next year. The highest level of loan losses in the Great Depression was 3.4 percent in 1934, according to the report.
Mayo’s competitor Meredith Whitney also is bearish. She notes that U.S. banks have needed help from foreigners and taxpayers to replenish their capital.
“And I don't see that ending anytime soon,” she tells Forbes.
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