Global banks are likely to be hit with hefty losses of up to US$400 billion stemming from mortgage investments that have soured in the US housing slump, according to an industry report.
Analysts at Deutsche Bank estimate the banking industry's losses could swell to as much as US$400 billion as major banks continue to write-off stricken multibillion dollar investments in mortgage-backed securities.
In a report obtained on Tuesday, Deutsche Bank analyst Mike Mayo forecast the losses could range between US$300 billion and US$400 billion.
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 last year.
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 Nov. 5 that it will likely have to write-off a further US$8 billion to US$11 billion, 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 US$7.9 billion in mortgage investments largely tied to subprime home loans.
Subprime loans were granted to people with patchy credit histories during the housing boom. Subprime loan failures have sparked a surge of home foreclosures and played havoc with mortgage investments.
Other US banks have been hit by the housing downturn. Foreign banks including Switzerland's largest bank UBS and global banking giant HSBC have also sustained losses.