3rd UPDATE: US Banks Have Reserved For Mortgage Settlement
February 09 2012 - 4:51PM
Dow Jones News
NEW YORK (Dow Jones)--J.P. Morgan Chase & Co. (JPM), Wells
Fargo & Co. (WFC) and Bank of America Corp. (BAC) said Thursday
they have reserved for their share of the settlement that big banks
reached with the Justice Department, the Department of Housing and
Urban Development and 49 state attorneys general.
Citigroup Inc. (C), however, is taking some retroactive
charges.
The long-awaited $25 billion settlement involving the nations'
largest companies collecting mortgage payments and executing
foreclosures is a relief to investors because it removes some
uncertainty about the financial impact of the foreclosure
trouble.
However, analysts warned that other litigation still looms, and
that banks will still have to struggle with investors in
mortgage-backed securities who demand that the banks buy back
soured loans.
Financially, at least, shareholders won't have to bear new costs
for Thursday's settlement.
J.P. Morgan and Wells Fargo each have a $5.3 billion share of
the settlement. Bank of America is bearing the biggest share, $11.8
billion. Citigroup has to pay $2.2 billion, and Ally Financial Inc.
must pay $310 million.
In a statement, Citi said that it will take $209 million in
retroactive fourth-quarter charges, but added that its existing
reserves "will be sufficient to cover customer relief payments and
all but a small portion of the cash payment called for under this
settlement."
A spokeswoman for J.P. Morgan said in a statement that the bank
has set aside the estimated cost of Thursday's $25 billion
settlement in previous quarters.
"We will incur some additional operating costs to implement the
new servicing standards," but those "will not be material," she
said.
Bank of America, too, said the implementation may increase
operating costs and that those aren't expected to be material. "The
financial impact of the settlements is not expected to cause any
additional reserves," the bank said.
A spokeswoman for Ally said the company doesn't expect the
financial impact of the agreement to be material. The lender took a
charge of $270 million in the fourth quarter for expected
foreclosure-related penalties.
Wells Fargo, in a press release, said it "had fully accrued" for
its programs mandated by the settlement.
Wells Fargo Chief Financial Officer Timothy Sloan told investors
during a Credit Suisse Financial Services conference in Miami that
the settlement is good for customers and shareholders. "We are very
pleased with the settlement, we are pleased to put this behind us,"
he said.
However, the settlement will reduce interest from mortgage
lending for years because borrowers benefit from reduced interest
rates on loans refinanced under the program, Wells Fargo and Citi
said.
Shareholders responded somewhat indifferently. Bank of America's
stock rose 0.62% to close at $8.18; shares of J.P. Morgan, Citi and
Wells Fargo fell slightly.
While shares of tobacco companies fell after the big 1998
settlement, bank stocks likely won't take a hit following the
settlement because banks have reserved for the financial impact,
Keefe, Bruyette & Woods said in a research report.
"While the settlement likely reduces future liability related to
foreclosure matters, the agreement does not reduce future liability
related to securitization activities, federal or state criminal
claims, or claims brought by individual homeowners," wrote Wells
Fargo Securities analyst Matthew Burnell, who follows Bank of
America and J.P. Morgan Chase.
J.P. Morgan said in a regulatory filing that the settlement
releases the bank "from further claims related to servicing
activities, including foreclosures and loss mitigation activities,"
but that this doesn't include securitization matters or New York
Attorney General Eric T. Schneiderman's suit against Bank of
America, J.P. Morgan Chase and Wells Fargo over a private national
mortgage electronic registry system, MERS.
Mike Heid, president of Wells Fargo Home Mortgage, said in an
interview that the issues surrounding housing and the economic
recovery "are very broad, very complex," and "there is no one
action, no one solution that takes care of all of that."
He declined to discuss the New York state suit about MERS, but
said "The spirit of cooperation that was achieved through that
settlement approach I would believe could and should carry forward
in a lot of other ways."
There was no word Thursday about regional banks signing on to
the settlement. Last month, PNC Financial Services Group Inc.
(PNC), SunTrust Banks Inc. (STI) and U.S. Bancorp (USB) said they
put aside reserves for the settlement. "We anticipate investors may
hear more news on these companies later on in the process," RBC
Capital Markets analysts wrote in a research report.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
(Nick Timiraos and Andrew R. Johnson contributed to this
article.)
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