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!

U.S. Banks Have the Money to Handle 'Worst Case' Mortgage Claims, Hilder Says

Stocks in this article: BAC WFC JPM C

NEW YORK ( TheStreet) -- Bank of America (BAC) and the three other largest U.S. banks should have little difficulty paying for additional legal claims tied to vulnerable mortgages underwritten ahead of the 2008 global financial crisis, argues a report Tuesday from Drexel Hamilton analyst David Hilder.

Following a review of second quarter filings of "reasonably possible losses" above existing reserves for mortgage-related claims against Bank of America, as well as JPMorgan Chase (JPM), Citigroup (C)and Wells Fargo (WFC), Hilder concludes the institutions have more than enough capital to withstand their own worst estimates. Those estimates range from $3.3 billion at Wells Fargo to $7.5 billion at JPMorgan.

The banks' worst case estimates "are clearly manageable in the context of each bank having Tier 1 common capital under Basel 3 nearly equal to or exceeding the requirements that won't take full effect until 2019, and the maximum estimated additional loss amounts equaling 10% to 37% of expected pretax earnings for 2013," Hilder writes.

While Hilder acknowledges "examples in which banks' initial estimates of mortgage-related losses and litigation settlement costs were too low," he argues that "at this point, more than five years since the mortgage-driven parts of the crisis began to explode into public view, we believe the banks' estimates of 'reasonably possible' losses are likely to be more accurate than externally- derived estimates."

Most Wall Street analysts appear to share Hilder's view. One notable exception is CLSA analyst Mike Mayo, who sees billions in potential liability for Bank of America above the bank's estimates due to an ongoing challenge to a more than two year-old proposed settlement between the bank and 22 large institutions. That settlement would have Bank of America pay $8.5 billion to resolve $107 billion in investor losses. While many parties that initially objected, including attorneys general for New York and Delaware, as well as two Federal Home Loan banks, dropped their objections, AIG (AIG), along with several smaller investors, continue to challenge the deal.

Hearings on whether to approve the settlement are set to resume Sept. 9 following a 45-day recess and are being presided over by New York State Supreme Court Judge Barbara Kapnick.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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 17,572.19 +215.32 1.24%
S&P 500 2,038.65 +25.76 1.28%
NASDAQ 4,710.0670 +65.7550 1.42%

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