U.S. Banks Face $31 Billion in Loan-Buyback Losses, S&P Says
U.S. Bank Shares Rise on Report
Andrew Harrer/Bloomberg
A woman walks out of a Bank of America branch in Washington, D.C.
A woman walks out of a Bank of America branch in Washington, D.C. Photographer: Andrew Harrer/Bloomberg
JPMorgan Chase & Co., Bank of America Corp. and four other U.S. lenders may face an additional $31 billion in costs beyond what they have already set aside for buying back mortgages by 2012, Standard & Poor’s estimated.
Total losses from repurchases by the banks, which also include Wells Fargo & Co., Citigroup Inc., PNC Financial Services Group Inc. and U.S. Bancorp, may amount to about $43 billion from 2009 to 2012, Vandana Sharma, an S&P credit analyst, wrote in a report today. The banks have accounted for about $12.4 billion so far, she said.
Fannie Mae, Freddie Mac and bond insurers such as MBIA Inc. are pressing lenders to honor promises to buy back mortgages if they’re later found to be based on inaccurate data. Known as representations and warranties, the promises cover defects such as inflated appraisals or misstatements about borrowers.
“The current disruption creates additional uncertainty for the banks at a time, when in our view, they were just beginning the process of clearing up the growing other real estate owned inventories on their balance sheet,” the report says.
The repurchases will only become “systemic” and affect credit ratings if more so-called private-label mortgage investors pursue the six lenders, according to the report.
A group of such investors, including Bill Gross’s Pacific Investment Management Co. and BlackRock Inc., last month moved to use Bank of America’s allegedly faulty mortgage servicing to overcome hurdles blocking them from seeking repurchases. Typically, mortgage bond trustees must make the claim on their behalf.
Back to ‘Drawing Board’
“We don’t know if some of those broader issues might become systemic,” Sharma said on a conference call. “If that starts to happen, we as ratings analysts have to go back to the drawing board.”
S&P and competitor Moody’s Investors Service have been blamed by investors and policy makers, including members of a Senate investigative panel, for helping cause the global financial crisis by assigning top grades to mortgage-linked securities that eventually defaulted.
-- With assistance from Jody Shenn in New York. Editors: David Scheer, William Ahearn.
To contact the reporter on this story: Donal Griffin in New York at Dgriffin10@bloomberg.net.
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.
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