Estimate a weighted combination of the X variables (loading vector) which produce a latent vector that optimally predicts the combination of Y variables.
All Y and X variables are then projected on to this latent variable .
A second latent variable representing a linear combination of the Y residuals is estimated. This second factor, which is orthogonal to the first, optimally predicts the residuals of all the Y variables.
Continue until an acceptable number of factors have been extracted.