Calyon Securities’ Mike Mayo Says US Loan Losses Worse Than Depression


Calyon Securities banking analyst Mike Mayo released a report entitled “Seven Deadly Sins of Banking” today. In it, Mayo says that US banks’ loan losses could hit the 5.5% mark by 2010–that’s 2.1% higher than during the Great Depression in 1934. The Wall Street Journal has more details:

Mayo titled his report “Seven Deadly Sins of Banking,” and listed them as “greedy loan growth, a gluttony of real estate, lust for high yields, sloth-like risk management, pride of low capital, envy of exotic fees, and anger of regulators.”

He said that the government won’t be able to quickly resolve problem loans, which he said had only been marked by the banks that hold them to 98 cents on the dollar. Furthermore, government efforts to support banks are a “Catch-22,” he said, since being leinent with banks that have made mistakes will leave toxic assets on their balance sheets, while being tough on banks after the government stress tests are released in late April would force many of them to raise more dilutive equity capital, which would then hurt banking and lending activity.

Mayo, a long-time bear on the banking sector who recently left Deustche Bank, started Calyon’s coverage of the U.S. banking sector with an “underweight” rating, indicating investors should minimize exposure in their portfolio.

Shares of all 11 banks Mayo mentioned in his report were down by more than 3% each in early trading. Mayo put “underweight” ratings on Bank of America Corp. (BAC), Citigroup Inc. (C) , JPMorgan Chase & Co. (JPM), Comerica Inc. (CMA), PNC Financial Services Group Inc. (PNC) and Wells Fargo & Co. (WFC). He assigned more- bearish “sell” ratings on BB&T Corp. (BBT), SunTrust Banks Inc. (STI), U.S. Bancorp (USB), Fifth Third Bancorp (FITB) and KeyCorp (KEY).

This is more evidence that the government’s Wall Street bailout is sorely missing the mark. Will the Obama administration ever get the hint?

  • tc

    Mayo was also FIRED by Credit Suisse. Which speaks a lot about the lack of credibility this wannabe analyst has. Obviously Mayo got caught short in the market and wants to drive prices down.

    His long time “bear” attitude (for many many years) is proof enough of his lack of credibility. Its not like he somehow has some special inside information that only he knows about on all banks.

  • Andy

    The simplcity presented by Mayo’s argument is so thin when examined carefully, one might ask himself, if, in fact Mr. Mayo finds himself short in position or just short in intellect. I have found that valuable people are very rarely fired from good jobs. Perhaps we should consider the source of these findings, before we run to brokers to sell banks. For that matter, in the interest of fairness and transparency, Mr. Mayo are you short on the banks you had mentioned?

  • Mike Patterson
    * April 6, 2009, 4:45 PM ET
    “The History of Mike Mayo Bank Downgrades”
    “Being Right Star analyst Mike Mayo thought he could change the ratings game on Wall Street. He thought he could be honest–and tell people to sell stocks that were headed for a meltdown. It cost him his job.” David Rynecki Feb 5, 2001
    “Testimony Before the Financial Crisis Inquiry Commission”
    Jan 13, 2010.

    “It is dangerous to be right in matters on which the established authorities are wrong.” -Voltaire