By Michael J. Moore
April 6 (Bloomberg) — CLSA analyst Mike Mayo assigned an “underweight” rating to U.S. banks, saying loan losses may exceed Great Depression levels and the government may be forced to take over large lenders. Financial shares and major U.S. stock indexes dropped after Mayo advised clients to sell shares of banks including Winston- Salem, North Carolina-based BB&T Corp. and Cincinnati’s Fifth Third Bancorp. Mayo said in a report today that he assigned “underperform” ratings to Bank of America Corp. and JPMorgan Chase & Co., the two biggest U.S. banks by assets. “While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” said Mayo, who joined CLSA from Deutsche Bank AG last month. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.” The 46-year-old Mayo gained recognition in 1999 at Credit Suisse AG for correctly taking a bearish stance on bank stocks when other analysts remained bullish. After being fired from Credit Suisse, he joined Prudential Equity Group in 2001, where he earned a reputation for criticizing investors and companies who tried to curb objective analysis. At Deutsche, Mayo had “sell” or “hold” ratings on all 18 companies he covered, according to data compiled by Bloomberg. … Mayo said banks engaged in “seven deadly sins”: 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. Mayo’s “underweight” rating applies to the entire sector. …
Mayo Gives ‘Underweight’ Rating to Banks, Citing Loan Losses
