Analyst: Loan Losses Will Exceed Depression Levels

Mike Mayo, who left Deutsche Bank AG last month and joined CLSA, assigned an “underweight” rating to U.S. banks and predicted loan losses will exceed levels from the Great Depression.

U.S. stocks dropped after Mayo gave “sell” ratings to banks including Winston-Salem, North Carolina-based BB&T Corp. and Cincinnati’s Fifth Third Bancorp. Bank of America Corp. and JPMorgan Chase & Co., the two biggest U.S. banks by assets, were assigned “underperform” ratings, Mayo said in a report today.

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Mayo said he expects loan losses to increase to 3.5 percent, and even as high as 5.5 percent in a stress scenario, by the end of 2010. Mortgage-related losses are about halfway to their peak, while credit-card and consumer losses are only a third of the way to their expected highest levels, according to Mayo, who declined to comment beyond the report.