Dozens of U.S. banks will fail by 2010: analyst

By Jonathan Stempel

NEW YORK (Reuters) - Dozens of U.S. banks will fail in the next two years as losses from soured loans mount and regulators crack down on lenders that take too much risk, especially in real estate and construction, an analyst said.

The surge would follow a placid 3-1/2 year period in which just four banks collapsed, all in the last year, RBC Capital Markets analyst Gerard Cassidy said in a Friday interview.

Between 50 and 150 U.S. banks -- as many as one in 57 -- could fail by early 2010, mostly those with no more than a couple of billion dollars of assets, Cassidy said. That rate of failure would be the highest in at least 15 years, or since the winding down of the savings-and-loan debacle.

"The initial round of failures will come from smaller banks with limited access to capital and overexposure to commercial real estate," Cassidy said.

"Could banks with $75 billion or $100 billion of assets fail? That's hard to say, but it depends on the severity of the economic downturn and the real estate decline," he added.

Banks are under pressure as a slowing economy, the housing crunch, weak job growth and rising energy costs make it harder for individuals and businesses to pay their bills.

Compounding the problem has been the seizing up of capital markets that has led to more than $130 billion of write-downs worldwide, including at lenders such as Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) and Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz).

On Wednesday, Standard & Poor's said financial industry losses linked to mortgages may reach more than $265 billion.