Bank of America Corp., the biggest U.S. lender, led financial stocks that slid in New York trading on concerns that reviews of home-foreclosure practices may fuel costs.
Bank of America fell 5.7 percent to $12.53 at 12:27 p.m. San Francisco-based Wells Fargo & Co. dropped 4.7 percent to $24.60. JPMorgan Chase & Co. declined 3.3 percent to $38.51 and Citigroup Inc., both based in New York, dropped 5.4 percent to $4.02. Charlotte, North Carolina-based Bank of America and JPMorgan were the worst-performing members of the 30-member Dow Jones Industrial Average today.
Attorneys general from all 50 states said yesterday they have joined together to open an investigation into whether lenders and mortgage companies falsified documents in foreclosures proceedings. Lenders including Ally Financial Inc., Bank of America and JPMorgan have suspended some foreclosures or evictions while they review their paperwork.
“You have a new cloud forming on the horizon which could be anything from something minor to something that really slows down the process” of foreclosures, said Benjamin Wallace, an analyst at Grimes & Co. in Westborough, Massachusetts, which manages about $900 million and owns stock in JPMorgan and Wells Fargo. “We’d rather be talking about normalized earnings and dividends.”
FBR Capital Markets analyst Paul Miller estimated Oct. 12 that faulty foreclosures could cost U.S. lenders $2 billion for every month home seizures are delayed, up to a total of $6 billion.
The crisis will get worse unless regulators move quickly to find a national solution, said Katherine Porter, a visiting professor at Harvard Law School who has studied banks’ foreclosure practices.
“If the delays drag on and the lawsuits ramp up we’ll see a twin hit to the economy, banks are very large players in the overall stock market, for example, and if their stocks start falling, that is not good,” Porter said in a telephone interview yesterday. “There could be, in the worst-case scenario, a real downward hit to both the stock market and also to the overall housing economy.”
JPMorgan, the first of the largest U.S. banks to report third-quarter earnings, will probably have some “incremental” expenses from the foreclosure scrutiny, Chief Executive Officer Jamie Dimon said yesterday.
“It will cost us some money to go back and make sure it’s done right; it will delay some foreclosures,” Dimon told reporters. The bank will also have “in-depth conversations” with regulators about their concerns, he said.
To contact the editors responsible for this story: David Scheer at email@example.com