NEW YORK (Reuters) - Investors and banks holding on to U.S....

NEW YORK (Reuters) - Investors and banks holding on to U.S. subprime mortgage bonds in hopes of a recovery in value may make losses worse, mirroring the Japanese banking crisis in the 1990s, according to authors of a new report.

The Japanese banking crisis, triggered in the early 1990s by a slumping property market and brokerage collapses, led to a decade-long credit crunch. The government subsequently had to step in to stabilize the banking system by injecting public money into top banks.

"The Japanese experience of holding large losses as opposed to taking a hit and moving on was a direct cause of the Japanese malaise," said Josh Rosner, co-author of the report and a managing director at Graham Fisher, an investment research firm in New York.


The new report, "Financial Services Exposures to Subprime," said "there are many institutions with significant levels of embedded losses that have not yet been recognized as a result of questionable valuations."

Today, only a few banks and brokerages have recognized losses on U.S. subprime mortgage bets, as the housing market has weakened. Bear Stearns Cos (BSC.N: Quote, Profile , Research) has publicly recorded losses from its hedge fund bets on subprime mortgage bonds held in collaterized debt obligations. Outside the U.S., four hedge funds, two in Britain and two in Australia, have said they suffered losses.

More investors are hiding losses that may only get worse, the report said. Growing concern about the deteriorating U.S. housing market may hurt corporate buyouts, debt financing and stock markets. The Standard & Poor's 500 Index lost $300 billion in value this week on concern about credit markets.

Today's investors and financial institutions are now "playing a dangerous game," Rosner said on Friday. "The losses will almost certainly be larger than they are today."