This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Wall Street Whispers: Bank Stocks' Real Risk

Stocks in this article: BAC GS ABK BLK FMCC.OB FNMA.OB

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

But, as it happens, the worst-case scenario never materialized. Goldman lost few clients as a result of the case and the negative attention. It ultimately settled with the SEC for $500 million without admitting to the charges. The Wall Street giant saw its stock bottom out around $130 on July 1 and move on a fairly steady trajectory upward since then. Goldman's shares closed above $170 last week for the first time in more than half a year.

The fallout from mortgage litigation is different in its details and its scope, but not that much different in nature.

"In 2008, you were staring at what could have been the end of the system, so anytime you get a whiff of mortgage issues again, you get the 'sell first ask questions later' attitude," says Driscoll. "With Bank of America, you had the stock go down to $3, so even at $12, people are still nervous."


What touched off the bearishness in Bank of America shares was a report by a hedge fund outlining $74 billion in potential buyback exposure. The analysis by Branch Hill Capital was performed months earlier, but began gaining traction in the market the week of Oct. 11. The headline number was pooh-poohed by analysts and effectively disregarded by the company a week later.

In a presentation to investors on Oct. 19, executives outlined the elements of its buyback exposure - at least those that it felt comfortable predicting.

CFO Charles Noski cited nearly $13 billion in buyback requests, $4.4 billion of which management considered a liability. Most of the company's exposure came from requests by government-sponsored entities (GSEs) Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB). Management found it more difficult to estimate exposure to claims from private investors and monoline bond insurers, mainly because it had limited, inconsistent experience with them.

"Until we have a meaningful repurchase experience with these counter parties, we believe it is not possible to reasonably estimate this exposure," said Noski.

Officials at other large mortgage servicers have characterized exposure similarly. Wells Fargo (WFC) executives outlined even less buyback exposure than BofA in an earnings report the following day, but then said in a quarterly filing that it "cannot estimate the possible loss or range of loss" from litigation. Similarly, JPMorgan Chase (JPM) outlined higher buyback reserves and increased activity related to the GSEs. But commenting on other repurchase requests, CEO Jamie Dimon noted that "a lot of the private label stuff didn't have the same rules, requirements, disclosures, all that, so they're all different."

Indeed, just hours after its earnings call, news hit that BlackRock (BLK) and Pimco had teamed with the Federal Reserve to formally request that Bank of America (BAC) buy back $47 billion worth of mortgage-backed securities (MBS). Executives alluded to the letter sent by those investors during the call, but related exposure wasn't included in the quarterly numbers, which went through Sept. 30.

2 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,085.76 +55.55 0.31%
S&P 500 2,092.26 +10.38 0.50%
NASDAQ 4,814.0280 +40.5560 0.85%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs