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
TheStreet Open House

Bank Stock Investors: Ignore Mortgage Settlement (Update 3)

Stocks in this article: BACCJPMWFC

Updated with market close information.

NEW YORK ( TheStreet) -- Investors should ignore Thursday's foreclosure settlement.

The $25 billion settlement between federal regulators, 49 states' attorneys general, and the largest loan servicers -- including Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Ally Financial -- removes some headline risk for the banks, while providing some cash to millions of consumers who lost their homes, but the banks were already substantially reserved for their immediate $5 billion cash payout, and the loans subject to principal write-downs as part of the settlement, had already been substantially marked-down by the banks.

Not surprisingly, Bank of America is the largest participant in the settlement, to the tune of $11.8 billion. While that's a huge number, the company said that "The financial impact of the settlements is not expected to cause any additional reserves to be taken over those made during 2011."

The settlement does nothing to alleviate Bank of America's mortgage putback risk, mainly resulting from the purchase of Countrywide Financial in 2008, but also from the Merrill Lynch acquisition. The putback claims -- including the Federal Housing Agency's massive suit against 17 lenders in September -- could take years to work out. Then again, Bank of America "ended 2011 with $15.9 billion reserved to address potential representations and warranties mortgage repurchase claims."

Bank of America did say that the "$1 billion in refinancing assistance" it would provide under the settlement "is expected to be recognized as lower interest income in future periods as qualified borrowers pay reduced interest rates on loans refinanced."

So, whatever your previous opinion on Bank of America was, prior to the settlement, it would appear that nothing really has changed, other than the probable reduction of breathless headlines, bashing the company and its competitors for foreclosing on borrowers who haven't been paying what they agreed to pay.

Bank of America's shares have rallied 47% year-to-date, through Friday's close at $8.107, after sliding 58% in 2011.

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

Get Adobe Flash player

For truly long-term investors, who can commit for several years, Rochdale Securities analyst Richard Bove things that Bank of America will be a big winner, saying on Wednesday that the company has eventual "$3 in earnings power there," supporting a share price of $30 in three to four years.

For investors with a shorter-term outlook, Wells Fargo analyst Matthew Burnell maintained his "Market Perform" rating on Bank of America, but reduced his 2012 earnings estimate to 60 cents a share from 75 cents, and his 2013 estimate to a dollar from $1.25, because of the company's warning on lower net interest income because of the refinancing and principal forgiveness under the settlement.

The shares trade for 0.7 times tangible book value a, according to HighlineFI, and for 11 times the consensus 2012 earnings estimate of 71 cents a share, among analysts polled by Thomson Reuters.

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

1 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
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 16,614.81 +215.14 1.31%
S&P 500 1,941.28 +37.27 1.96%
NASDAQ 4,419.4780 +103.4040 2.40%

Brokerage Partners

Rates from Bankrate.com

  • 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