By Alistair Barr
SAN FRANCISCO (Dow Jones) - Bank analyst Mike Mayo went biblical
on the sector Monday, predicting loan losses will probably exceed
Great Depression-era levels as the industry is punished for
succumbing to the seven deadly sins of gluttony, greed, lust,
sloth, wrath, envy and pride.
Mayo, a former Deutsche Bank analyst now with Calyon Securities,
passed judgment on the banking industry with an underweight
rating.
Shares of Bank of America (BAC), Citigroup (C), J.P. Morgan
Chase (JPM), Wells Fargo (WFC), PNC Financial Services (PNC) and
Comerica (CMA) will underperform, the analyst foretold.
Mayo commanded investors to sell shares of US Bancorp (USB),
SunTrust (STI), Fifth Third (FITB), KeyCorp (KEY) and BB&T
(BBT).
"We are initiating on U.S. banks with an Underweight sector
rating given the ongoing consequences of increased risk taking by
banks in seven different areas," spaketh Mayo in a note to
investors.
"The seven deadly sins of banking include greedy loan growth,
gluttony of real estate, lust for high yields, sloth-like risk
management, pride of low capital, envy of exotic fees, and anger of
regulators," quoth Mayo.
"A key implication is that loan losses (to total loans) should
increase to levels that exceed the Great Depression," the analyst
foretold. "While certain mortgage problems are farther along, other
areas are likely to accelerate, reflecting a rolling recession by
asset class."
Loan losses to loans will likely increase from 2% to 3.5% by the
end of 2010 given ongoing problems in mortgage and an acceleration
in cards, consumer credit, construction, commercial real estate and
industrial, the analyst warned.
Government intervention might not help as much as expected,
especially given that loans have been marked down to only 98 cents
on the dollar, on average, Mayo added.
Bank stocks fell during late morning action, with J.P. Morgan
losing 2.6%, Bank of America down 0.7%, Citi off 3.2% and Wells
Fargo down 5.5%.
Shares of other large banks such as PNC and KeyCorp lost more
than 5%.