Banks face massive loan losses because of defaults on debts and housing-price slide
— The U.S. banking sector is headed for a credit downturn that will be “the worst in generations,” featuring widespread defaults on a range of debts and a national housing price slide not seen since the , one of the most influential analysts on says.
The banks face massive loan losses — “far more dramatic” than most bank executives and ratings agencies have forecast — as the next chapter in financial-sector turmoil unfolds, said Meredith Whitney, an analyst with Oppenheimer &Co. Inc.
“We believe loss rates will exceed the highest levels since 1990 by a significant margin,” she said in a note Monday.
“Bank losses will be the highest in the past 20-plus years as a result of greater numbers of individual defaulting on mortgages and/or other loans and from [loan balances that] are far higher than they were in the last housing cycle.”
Whitney — who is also a panellist forand the No. 2-ranked analyst on a Forbes list of top stock pickers for 2007 — shot to global infamy last year after her gloomy, but accurate, predictions about the scale of subprime problems facing . led to a worldwide sell-off of banking stocks.
In Monday’s note, the Oppenheimer analyst slashed her already-depressed forecasts of what large U.S. banks will earn in 2008 by 29 per cent and by 13 per cent for 2009, citing concerns about mortgages, credit-card balances and other loans.