NEW YORK (Dow Jones)--Bank of America Corp. (BAC) remained under pressure Wednesday as investors and analysts pulled back on its shares after mortgage-bond holders ratcheted up efforts to force the bank to repurchase loans.
Chief Executive Brian Moynihan has vowed to fight in court the allegations the banking giant didn't properly service bond deals, but his comments did little to appease investors, who sent the bank's stock down to another 52-week low--or Wall Street analysts, at least three of whom cut their stock-investment ratings on the company.
Bank of America shares were recently off 2.8% to $11.48, earlier trading as low as $11.17--a level not seen since May 2009. In the last week alone, the stock has dropped 14%, and it is the worst performer in the Dow Jones Industrial Average so far this year, off 24%.
The concerns stem from how much capital loss the bank may incur from issues pertaining to the loans. Many government-sponsored entities, such as Fannie Mae (FNMA) and Freddie Mac (FMCC), as well as monoline insurers and private investors are calling on the bank to repurchase loans and compensate for losses due to inadequate mortgage servicing.
The issue of put-backs, or mortgage returns, was exacerbated by a letter sent Monday by a group of institutional bond investors. The investors demanded the bank take back billions of dollars in failing mortgages originally issued by affiliates of Countrywide Financial Corp., which was acquired by Bank of America in 2008.
While praising Bank of America's fundamentals, Stifel Nicolaus & Co., Deutsche Bank Group and Oppenheimer & Co. reluctantly downgraded their ratings on the stock.
Stifel, which cut Bank of America to hold from buy, said the action "goes against our better fundamental analysis/judgment" but pointed to uncertainty surrounding capital losses.
And Oppenheimer warned that while put-backs from government-sponsored enterprises are contained at manageable levels, it is still concerned about other loan-repurchase suits, saying "there will be lots of suits with big numbers." It lowered its rating to to perform from outperform.
Deutsche Bank repeated some of the same concerns.
But not all firms are as pessimistic. FBR Capital Markets said concerns surrounding the company--and the mortgage lawsuits it is likely to face--are overblown.
The analysts said it will be difficult for private investors to prove fraud and encouraged investors to overlook the negative headline risk, adding it may take two to three years before the issues surrounding loan repurchases are resolved.
Worries about sloppy mortgage underwriting and servicing practices clouded the discussion of the bank's results Tuesday. Excluding a $10.4 billion charge, which the bank attributed entirely to an amendment in the Dodd-Frank financial-overhaul law that limits debit-card income, its third-quarter results exceeded Wall Street estimates. Its $3.5 billion in fixed-income revenue also beat rivals Citigroup Inc. (C) and J.P. Morgan Chase & Co. (JPM), and credit costs showed improvement.
-By Corrie Driebusch, Dow Jones Newswires; 212-416-2143; corrie.driebusch@dowjones.com;
Wednesday, October 20, 2010
Mini-Armagedon in Bank Shares
Oct. 15 2010 - 6:09 pm
By ROBERT LENZNER
The mortgage foreclosure scandal threatens the profits of the nation’s leading banks, Bank of America (BAC), JP Morgan (JPM), Citigroup(C) and Wells Fargo(WFC) and will delay the recovery of the housing market in the US.
In the market action today, the share prices of the major money center banks were hit badly; Bank of America fell 6.5% to $11.78 a share, the lowest price for the nation’s largest bank since July, 2009. Jp Morgan Chase fell 4% to $37.16. A major blow to all the major investors who were counting on a sterling recovery in bank shares.
The freeze on foreclosures threatens another $1 trillion of losses to the banking system if all these mortgages cannot be cleared out of the system. It means that pending sales of properties that were foreclosed are now of dubious legality, explains Charles Hugh Smith in his blog post yesterday, “The Coming Collapse of the Real Estate Market,” (asoftwominds.com) At the very least, this scandal over the paperwork on foreclosures is another serious black eye for banks in the eyes of the public. No doubt, investors will continue to dump shares because the future resolutionn of this mess is so uncertain.
Buyers who closed on foreclosed homes now face legal challenges to their ownership and may even face a clawback of the property. If all these homes enter a legal limbo, then the overhang of homes will be so troubling, home prices could continue to weaken, and the crisis in housing be extended.
The repercussions to the economy, to homeowners, to consumers, and the banking system will be even more devlish to unwind. This nightmarish scenario is bound to impact the stream of fees and interest that banks like Bank of America and JP Morgan Chase collect on their vast mortgage portfolios.
At the very minimum bank earnings will be effected negatively. But, in a larger sense, the imperative to stop home prices from falling nationwide must be delayed. Let’s hope that Smith’s prediction of a total collapse in the real estate market will be met boldly by the Obama administration.
By ROBERT LENZNER
The mortgage foreclosure scandal threatens the profits of the nation’s leading banks, Bank of America (BAC), JP Morgan (JPM), Citigroup(C) and Wells Fargo(WFC) and will delay the recovery of the housing market in the US.
In the market action today, the share prices of the major money center banks were hit badly; Bank of America fell 6.5% to $11.78 a share, the lowest price for the nation’s largest bank since July, 2009. Jp Morgan Chase fell 4% to $37.16. A major blow to all the major investors who were counting on a sterling recovery in bank shares.
The freeze on foreclosures threatens another $1 trillion of losses to the banking system if all these mortgages cannot be cleared out of the system. It means that pending sales of properties that were foreclosed are now of dubious legality, explains Charles Hugh Smith in his blog post yesterday, “The Coming Collapse of the Real Estate Market,” (asoftwominds.com) At the very least, this scandal over the paperwork on foreclosures is another serious black eye for banks in the eyes of the public. No doubt, investors will continue to dump shares because the future resolutionn of this mess is so uncertain.
Buyers who closed on foreclosed homes now face legal challenges to their ownership and may even face a clawback of the property. If all these homes enter a legal limbo, then the overhang of homes will be so troubling, home prices could continue to weaken, and the crisis in housing be extended.
The repercussions to the economy, to homeowners, to consumers, and the banking system will be even more devlish to unwind. This nightmarish scenario is bound to impact the stream of fees and interest that banks like Bank of America and JP Morgan Chase collect on their vast mortgage portfolios.
At the very minimum bank earnings will be effected negatively. But, in a larger sense, the imperative to stop home prices from falling nationwide must be delayed. Let’s hope that Smith’s prediction of a total collapse in the real estate market will be met boldly by the Obama administration.
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