MercoPress. South Atlantic News Agency

Global banks could loose 400 billion with US housing slump

Global banks are likely to loose up to 400 billion dollars stemming from mortgage investments that have soured in the US housing slump, according to an industry report. Major banks will have to continue to write off stricken multibillion investments in mortgage backed securities.

Deutsche Bank analyst Mike Mayo forecast the losses could range between 300 and 400 billion dollars. Mortgage-related securities were a hot commodity on Wall Street during the years-long housing boom, but the securities lost their luster this year amid a prolonged housing downturn dating to early 2006. Mayo said the estimated losses are likely to stem from a combination of mortgage defaults and losses tied to mortgage-related securities. At least one in four, of the risky home loans is forecasted to go into default. Mayo estimates losses from 150 billion to 250 billion based on 1.2 trillion of US subprime loans and an additional 150 billion of losses on derivatives linked to subprime debt. Citigroup, the world's biggest financial firm, and Merrill Lynch ousted their respective chief executives in recent weeks after disclosing large write-offs related to mortgage-backed securities and other complex investments. Citigroup warned on November 5 that it will likely have to write-off a further eight to 11 billion dollars, largely because of distressed mortgage-related investments. The bank announced the departure of chief executive Charles Prince the same day. Merrill Lynch, an investment bank and brokerage, forced out its CEO, Stan O'Neal, late last month after revealing it had written off 7.9 billion dollars in mortgage investments largely tied to subprime home loans. Subprime loans were granted to people with poor credit records during the housing boom. Subprime loan failures have sparked a surge of home foreclosures and played havoc with mortgage investments held by big banks. Other US banks, including Bear Stearns, have been hit by the housing downturn. Foreign banks including Switzerland's largest bank UBS and global banking giant HSBC have also sustained losses or been forced to write-off US mortgage investments