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Banks' Toxic Debts Could Hit $4 Trillion: Report

Reuters and CNBC.com
Tuesday, 7 Apr 2009 | 3:58 AM ET

Toxic debts racked up by banks and insurers could spiral to $4 trillion, new forecasts from the International Monetary Fund are set to suggest, British daily The Times reported on its website without citing sources.

The IMF said in January that it expected the deterioration in U.S.-originated assets to reach $2.2 trillion by the end of next year.

But it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21, the newspaper reported.

In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia, the Times said.

Financial Woes
CNBC.com
Financial Woes

Bank stocks came under pressure on Monday after Michael Mayo, a former Deutsche Bank analyst who now works for CLSA's Calyon Securities, highlighted the risks in the sector in a research note.

Mayo, who is widely respected for his timely calls in the sector, remains negative on the sector and is starting coverage at Calyon with "sell" or "underperform" ratings on 11 traditional U.S. bank stocks. His earnings forecasts for the sector also are below the average estimates of other Wall Street analysts.

"While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class," Mayo says, in the research note.

"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," he added.

Mayo expects the recession to persist and to put further pressure on commercial real estate loans.

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