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NEW YORK (
TheStreet) --The earnings outlook for banks is cloudy once again amid a deteriorating macroeconomic environment, with one pressure point on earnings is certainly not showing signs of easing.
Banks could face $130 billion in mortgage repurchase losses, according to FBR Capital analyst Paul Miller, up from an earlier estimate of $110 billion, as mortgage giants Fannie Mae and Freddie Mac show "continued aggressiveness" in forcing the industry to buy back mortgages sold during the peak of the housing boom under defective underwriting standards.
Bank of America(BAC - Get Report),
JPMorgan Chase (JPM - Get Report)Citigroup(C - Get Report),
Wells Fargo(WFC - Get Report) and
SunTrust Banks(STI - Get Report) to absorb 68% of the total repurchase requests.
Bank of America in particular may have to raise estimates for repurchase losses after a recent court ruling placed the burden of proof of losses due to a representations and warranties breach on banks instead of bond insurers.
FBR raised its loss estimate for the bank to $53 billion from $42 billion.
"With the exception of Bank of America, we expect the larger banks will likely be better able to absorb the repurchase losses with limited pressure to ROEs[Return on Equity] given their diversified earnings stream," Miller wrote in a report released Friday. "We continue to believe repurchase losses will be an earnings, not a capital, issue for the industry."
In comparing the estimated losses to relative earnings power of each bank, Bank of America, SunTrust,
First Horizon(FHN) and
PHH(PHH) will likely experience the most earnings pressure from the mounting putback claims, according to Miller.
PHH might have some offset from robust mortgage banking income, the analyst adds.
Banks including Citigroup, Wells Fargo, JPMorgan,
PNC Financial(PNC) and
Regions Financial(RF) appear farthest along in realizing their total losses, the analyst wrote.
Written by Shanthi Bharatwaj in New York.