Citigroup, JPMorgan `Well Positioned' in Mortgages, Goldman Says
Oct. 15 (Bloomberg) -- Betsy Graseck, an analyst at Morgan Stanley, discusses the outlook for bank earnings in the third quarter and the impact of home-foreclosure problems on the industry. Grasek, speaking with Margaret Brennan on Bloomberg Television's "InBusiness," also talks about her recommendation of American Express Co. (Source: Bloomberg)
Citigroup Inc. and JPMorgan Chase & Co. are “well positioned” to manage through mortgage-related problems such as so-called put-backs from Fannie Mae, Freddie Mac and private investors, Goldman Sachs Group Inc. said.
The total cost to the banking industry of having to buy back faulty mortgages from Fannie Mae, Freddie Mac and other government-sponsored entities could be between $29 billion and $44 billion, analysts led by Richard Ramsden in New York wrote in a note to investors today. The cost from private-label mortgage-backed securities put-backs could reach $34 billion, the analysts estimated.
U.S. bank stocks fell for a second day on concern costs for the put-backs will escalate and as a freeze on home foreclosures because of faulty paperwork led to a nationwide investigation of banks’ practices. The Goldman Sachs analysts said the foreclosure freeze represents a “temporary problem,” although the size of potential penalties and costs “are difficult to assess.”
Citigroup and JPMorgan, both based in New York, “appear well positioned, given their total exposure and accumulated reserves,” the analysts wrote. “While the increased time certainly represents a cost to the banks, we do not ultimately believe that the outcome will be materially different from the current outlook, as the documentation appears to be complete and appears to be more of a technical issue than a fundamental one.”
Litton Loan Servicing LP, a mortgage-servicing business owned by Goldman Sachs, said a week ago that it suspended foreclosures in some cases to review its procedures.
Goldman Sachs analysts have buy ratings on Bank of America Corp., JPMorgan and Citigroup, the three biggest U.S. banks by assets, and a neutral rating on Wells Fargo & Co., the fourth- largest. Goldman Sachs is No. 5.
Bank of America dropped 64 cents, or 5.1 percent, to $11.96 at 10:17 a.m. in New York Stock Exchange composite trading after dropping 5.2 percent yesterday. JPMorgan fell $1.79, or 4.6 percent, to $36.94, while Citigroup lost 11 cents, or 2.6 percent, to $3.96. Wells Fargo slid 97 cents, or 3.9 percent, to $23.75.
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.
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