American lenders are facing the worst decade in terms of sales growth since the great depression, CLSA’s Mike Mayo told CNBC on Wednesday.
"This is going to be the worst revenue-growth year since 1938. And in fact, this decade for U.S. banks will be the worst revenue decade since the decade of the Great Depression,” said the New York-based bank analyst, who has been bearish on U.S. lenders and is among the few market watchers who predicted the last global financial crisis.
Mayo based his bearish views on the deterioration in Europe's debt crisis that could trigger a liquidity crunch, and warned that U.S. lenders may be headed towards a period of very weak growth similar to what their Japanese counterparts experienced back in the late 1990s.
"Just as you saw in Japan, there's lack of loan growth, there's margin pressure, and there's revenue pressure...so it's a combination of factors that are leading to very weak revenue growth," he explained.
“We're not saying the U.S. banks are exactly like Japan, but what we are saying is they've been similar so far in the last 3 years, the real question is how much longer will U.S. banks mirror what's taking place in Japan over the last 20 years, and we think that's at least a couple of years more.”
The downgrade of U.S. debt by Standard & Poor’s in early August is also bad news for the financial sector, Mayo noted in a recent report."If the US will now have a less aggressive fiscal policy, U.S. GDP growth and bank revenues will be lower."
And as Europe’s debt contagion spreads, U.S. financial firms are finding themselves in the line of fire.
“Well what you're seeing here is when Europe sneezes, the U.S. can catch colds, so the impact, you've seen it already in the capital market activities, several of the largest U.S. banks have guided for lower market-sensitive revenues,” Mayo said.
CLSA has maintained its "underweight" rating on the U.S. banking sector. It slashed its outlook on shares of key financial institutions, lowering its target pricing on Bank of America to $7 from $8; Citigroup to $28 from $42; and JP Morgan to $35 from $52.