Bank loan losses may double by 2010-end: Deutsche

The JP Morgan and Chase headquarters is seen in New York January 30, 2008. REUTERS/Shannon Stapleton

(Reuters) - Loan losses for U.S. commercial banks are expected to rise to 3 percent by the end of 2010, from 1.5 percent in the third quarter of 2008, hurt by an increased percentage of bad loans, greater consumer leverage and faster problem recognition by banks, Deutsche Bank said.

Loan losses might even surpass the 3.4 percent loss levels reached in 1934 during the Great Depression as the industry has taken on increased structural risk in addition to mortgages that should become more apparent during the cyclical slowdown, the brokerage said.

Internal capital generation may not be enough to cushion losses, Deutsche Bank said and cut its earnings view on 16 large commercial banks, including Citigroup C.N, Bank of America Corp BAC.N and JPMorgan Chase & Co JPM.N.

Earnings for the group will experience further pressure in the form of lower revenue in the near term, given lower economic growth and consumer spending, the brokerage said.

“Moreover, additional securities losses or tougher requirements from regulators and ratings agencies may constrain existing capital, potentially forcing a bank to limit balance sheet growth and/or pay dividends,” Deutsche Bank wrote in a research note.

The KBW Banks Index .BKX fell 3 percent to 43.79 in early Monday morning trade.

Reporting by Amiteshwar Singh in Bangalore; Editing by Himani Sarkar