NEW YORK (Bloomberg) — Merrill Lynch & Co., Citigroup Inc. and other banks that underwrote collateralised debt obligations linked to US mortgages may end up reporting $77 billion of losses on their holdings, half of which they have already recognised, according to JPMorgan Chase & Co.

Losses marketwide on the so-called structured finance CDOs will reach about $260 billion, New York-based JPMorgan analysts led by Christopher Flanagan said in a report yesterday. Structured finance CDOs repackage asset-backed debt such as subprime-mortgage bonds and other CDOs into new securities with varying risks.

The decline in CDOs and other mortgage-related holdings amid the worst US housing market in at least 20 years has caused investors to flee bank stocks and bonds. Uncertainty about the extent of writedowns has also kept interbank lending rates from matching declines in yields on short-term US government debt.

"One of the benefits of securitisation is the offloading and global distribution of risk," the JPMorgan analysts wrote. "Ironically, this is now a capital markets hazard, since no one is sure where subprime losses lurk."

CDO sellers led by Merrill, Citigroup, UBS AG, Deutsche Bank AG and Goldman Sachs Group Inc. and bond insures including Ambac Financial Group Inc. and MBIA Inc. face losses on the safest pieces of CDOs, according to the JPMorgan report. Writedowns on that debt should be between 20 and 80 percent, the analysts wrote.

Mortgage-related writedowns announced for the third and fourth quarters by banks have totaled $47.2 billion, a tally that also includes losses aside from CDOs, JPMorgan said. Some banks may have "successfully hedged" their exposures to CDOs, though the timing of the gains on the offsetting positions may not match the timing of losses, the analysts wrote.

JPMorgan's team of CDO research analysts led by Flanagan and Kedran Garrison was voted the best of its field in a poll by Institutional Investor magazine this year.

The team's CDO loss estimate is triple the $85 billion that UBS analysts led by Laurie Goodman said they expect in a November 13 report. JPMorgan's estimate includes about $60 billion in losses from CDOs' holdings of other CDOs, which UBS excludes.