The impact of excessive risk, while already seen, still has more to go in our opinion, especially given a rolling recession by asset class. While mortgage losses may be half way to the peak, card and consumer losses may only be about one-third of the way and industrial and commercial real estate problems (except construction) seem in the early stages. Loan losses, as a percentage of loans, will likely pass the level of the Great Depression. Other pressures to income should include lower revenues (less loans and fees), higher expenses (more oversight costs), and dilution of shares outstanding (insufficient capital), likely leading to ongoing earnings shortfalls through 2010.
– Mike Mayo, “Seven Deadly Sins of Banking”, Financials Analyst, CLSA
Markets this morning appear to be the victim of some bad Mayo – a scathing report on the banks by outspoken analyst Mike Mayo, that is. In the report, Mayo put “underperform” or “sell” ratings on the 11 banks mentioned and said the banks problems are only “midstream”.