Lehman’s Jason Goldberg thinks US large-cap banks’ net charge-offs will hit a level not seen since the Great Depression (Net Charge Offs reflect the loans the banks admit are write-offs). Banks affected would include Bank of America (BAC), Wachovia (WB), and Citi (C):
Net charge-offs for our coverage totaled $8 billion (0.8% of loans) in 3Q07, $11 billion (1.1%) in 4Q07 and $14 billion (1.3%) in 1Q08. We expect this figure to total $17 billion or so (1.6%) in 2Q08. Full year losses should approach $79 billion, more than double 2007. Our loss expectations are up roughly 30% from our prior analysis.
This implies our composite NCO ratio increases from 0.95% in 2007 to 1.84% in 2008 (was 1.45%). This would make 2008 the highest year on record since 1936 and compares to a 60-year average of 0.47% and a 30-year average of 0.75%.
This 89bp increase would mark the largest single year increase ever and compares to a 66bp increase we experienced during the 1988-91 credit cycle.