Banks worldwide may lose as much as $400 billion from subprime mortgages, as at least one in four of the risky home loans go into default, analysts said on Monday.
Mike Mayo, an analyst at Deutsche Bank Securities Inc, estimated $150 billion to $250 billion of losses based on $1.2 trillion of U.S. subprime loans, and an additional $150 billion of losses on derivatives linked to subprime debt.
David Hilder, a Bear Stearns & Co analyst, also estimated a $150 billion to $250 billion loss on subprime home loans, in what he called a $2 trillion market.
Given our fundamental outlook, which is for rising inflows of non-performing loans in both mortgage and commercial loan portfolios, we believe the odds are in favor of the write-downs getting worse, rather than better, this year, Hilder wrote.
Banks including Citigroup Inc (NYSE:C), Merrill Lynch & Co (NYSE:MER) and Wachovia Corp (NYSE:WB) have announced more than $40 billion of write-offs this year as U.S. foreclosures set records and after investors stopped buying many kinds of risky debt.
Mayo said large banks and brokerages may suffer $100 billion to $130 billion of the subprime losses. He said this could include $60 billion to $70 billion by year end, including $43 billion already reported.
In the fourth quarter alone, he said Barclays Plc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG might each need to write off $5 billion, while Merrill Lynch might write off $4 billion and Bank of America Corp $1 billion.
Mayo's forecast assumes a 30 percent to 40 percent default rate and 40 percent to 50 percent loss rate. Hilder assumes a 25 percent to 30 percent default rate and 30 percent to 40 percent loss rate.
(Reporting by Jonathan Stempel; Editing by Dave Zimmerman)