Analyst Says U.S. Banking Crisis Has Begun
Earlier today, The Globe And Mail (Canada) reported that a major U.S. banking crisis is underway. Myles Zyblock, chief institutional strategist at RBC Dominion Securities Inc. (owned by Royal Bank of Canada), said that problems with the U.S. housing market have spilled over into the financial sector, setting off the third major banking crisis in the United States since the Great Depression. While Zyblock said he didn’t expect bank failures to be the “main problem” this time around, he wouldn’t discount the possibility “of a few sinking ships.”
According to The Globe And Mail:
In arguing his point about the likelihood of a major banking crisis, Mr. Zyblock trots out some disturbing statistics on the U.S. housing market and the fallout on the financials. He noted, for example, that more than 20 per cent of the value of U.S. mortgage loans made in 2005 and 2006 is linked directly to subprime situations, and another 19 per cent is linked to alt-A loan situations. Both are types of loans made to those who don’t qualify for prime mortgages.
And it is those loans that are running into trouble, as evidenced by the fact that 16 per cent of subprime mortgages are now past due. To make things worse, problems are starting to rise in the prime mortgage space as well as in the face of what he says is the worst case of national price deflation in the U.S. housing market in at least 40 years. And inventories of unsold houses are nearing multidecade highs with foreclosures adding to the supply.
Mr. Zyblock believes that the worst is probably still to come in terms of bank writedowns arising out of the real estate situation.
Zyblock said he “would not be surprised” if the U.S. government attempts some sort of bailout to deal with the situation.
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