The Zacks Analyst Blog Highlights: Wells Fargo, Bank of America, Citigroup,
JPMorgan Chase and AAR
CHICAGO, Nov. 8, 2012
CHICAGO, Nov. 8, 2012 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Wells Fargo & Company (NYSE:WFC),
Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), JPMorgan
Chase & Co. (NYSE:JPM) and AAR Corp. (NYSE:AIR).
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Here are highlights from Wednesday's Analyst Blog:
Wells Fargo to Forgo Interest Income
Wells Fargo & Company
) is all set to lose significant amount of interest income in the coming years
due to refinancing the mortgages arising out of the foreclosure settlement.
The company stated this in its most recent quarterly filing.
Wells Fargo will be refinancing the mortgages of around 33,000 to 36,000
borrowers, having an unpaid principal balance to the tune of about $6.7–$7.4
billion. As a result, the company anticipates reduction in interest income in
the range of $1.8– $2 billion ($181–$200 million annually), which is $300
million higher than the prior estimates.
Further, based on mix of loans to be refinanced, Wells Fargo expects a 270
basis points dip in the weighted average note rate and weighted average
remaining life of these loans is anticipated be 10 years. However, the actual
number of borrowers opting for refinance will definitely affect these
Under the refinance program, Wells Fargo is entitled to earn an additional 25%
credit for all refinance credits earned in the first year of the program. If
the company achieves the target, it will earn an extra credit of up to
$350–$390 million. Moreover, the company anticipates total earned credit from
this program to be approximately $1.7–$2.0 billion.
The forgoing of interest income stems from the agreement that Wells Fargo,
Bank of America Corporation
JPMorgan Chase & Co.
)and Ally Financial Inc., reached with the attorneys general of 49 states and
several federal agencies in February this year, over alleged faulty
foreclosure practices. The total settlement amount was $25 billion.
Wells Fargo's settlement share of $5.3 billion includes $900 million in a
refinance program, $3.4 billion in consumer relief programs and $1.0 billion
in foreclosure assistance payment to the Federal government and the states.
Wells Fargo expects the impact from the interest income loss to be spread
across several years. The company anticipates the low interest income to
negatively impact the net interest margin, which is already pressurized in the
low interest rate scenario. As of September 30, 2012, NIM stood at 3.66%
compared with 3.84% in the prior-year period. Also, the refinance program is
expected to reduce the fair value of the loans refinanced in the region of
$1.4 billion to $1.6 billion.
Yet, we believe that robust capital levels, prudent expense management as well
as improvement in credit quality, albeit at a slow pace, will support Wells
Fargo's financials going forward. Further, stress test clearance and sound
capital deployment activities will boost investors' confidence in the stock.
Wells Fargo currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also maintain a
long-term Neutral recommendation on the shares.
AAR Corp.'s Airlift Service Renewed
AAR Corp. (NYSE:AIR), one of the top contractors of aerospace, defense
products and services in the world, declared that it has been selected by U.S.
Transportation Command (USTRANSCOM) to continue its airlift support services
for the U.S. Department of Defense operations based in Afghanistan. The
renewal of the contract forms a part of the deal awarded to the company in
October, 2010, and is valued at $161 million.
According to the terms of the contract, AAR will carry on its services to meet
the U. S Military's Airlift requirement through using two Sikorsky S-92, six
Sikorsky S-61, and two Bell 214 ST10 helicopters.
Additionally, the company will continue supporting the U.S. NATO (North
Atlantic Treaty Organization) operations in Afghanistan and
U.S. Department of Defense engaging its airlift operating entity by providing
rotary-wing aircraft as well as fixed-wing support services. The aircraft
allocated by AAR are specifically designed to transport personnel, cargo and
mail while the support process offers personnel, tools and maintenance
The company has already established itself successfully within the U.S.
Government and its associates in Afghanistan, serving transport and logistics
requirement of the nation's defense forces. Thus, this renewal option is
expected to strengthen the company's influence within the U.S. Transportation
Command and Department of Defense.
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