US banks likely to lose $325b of capital

New York: Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime US mortgages, JPMorgan Chase, said in a report.

JPMorgan, which sent a default notice to Thornburg Mortgage after the lender missed a $28 million margin call, said more default notices and margin calls were likely.

The Carlyle Group's mortgage fund also failed to meet $37 million in margin calls last week.

"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterise this situation as a systemic margin call."

The credit crisis that began about a year ago will likely intensify after Friday's weak February US employment report "that most definitely signals recession," JPMorgan said.

Corporate bonds

Indeed, corporate bond spreads widened to a new record on Friday, surpassing levels seen in October 2002 during a boom in bankruptcies following the dotcom crash.

US employers cut payrolls in February for a second consecutive month, slashing 63,000 jobs, the biggest monthly job decline in nearly five years, the Labour Department said.