A Reuter report has stated that financial analysts are predicting that banks worldwide could lose as much as US$400 billion from subprime mortgages. This prediction is a result of at least one in four risky home loans going into default.

According to the report, Mike Mayo, an analyst at Deutsche Bank Securities Inc., estimated US$150 billion to US$250 billion of losses based on US$1.2 trillion of U.S. subprime loans, and an additional US$150 billion of losses on derivatives linked to subprime debt.

David Hilder, a Bear Stearns & Company analyst, also estimated a US$150 billion to US$250 billion loss on subprime home loans, in what he called a US$2 trillion market.

"Given our fundamental outlook, which is for rising inflows of non-performing loans in both mortgage and commercial loan portfolios, we believe the odds are in favor of the write-downs getting worse, rather than better," this year, Hilder wrote.

Banks including Citigroup Inc., Merrill Lynch & Co and Wachovia Corp have announced more than US$40 billion of write-offs this year as U.S. foreclosures set records and after investors stopped buying many kinds of risky debt.

Over the past six months the financial and housing market have been undergoing a severe battering resulting from subprime loans that were made to homeowners, who would not have normally qualified for such loans. Borrowers of subprime loans included several people in Caribbean communities in Florida and across the U.S., were overjoyed at being able to secure what they believed to be extremely attractive loans to enabling them to realize the core of the American Dream – owning a home. However, when the real terms of these loans became effective 3 to four years after the loans were closed, hundreds of people were unable to meet the increased payments resulting in delinquent loans, foreclosures, and huge losses for lenders.

Large banks may suffer

Mayo said large banks and brokerages may suffer US$100 billion to US$130 billion of the subprime losses. He said this could include US$60 billion to US$70 billion by year-end, including US$43 billion already reported.

In the fourth quarter alone, he said, Barclays Plc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG might each need to write off US$5 billion, while Merrill Lynch might write off US$4 billion and Bank of America Corp US$1 billion.

Mayo's forecast assumes a 30 to 40 percent default rate and 40 to 50 percent loss rate. Hilder assumes a 25 to 30 percent default rate and 30 to 40 percent loss rate.