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Regional Banks: Financial Losers

NEW YORK ( TheStreet) -- Large regional banks were losers on Thursday, on the prospect of relatively weak third-quarter results.

The KBW Bank Index (I:BKX) was down 0.3% to close at 62.53, with 14 of the 24 index components ending with declines. Large regional banks with shares pulling back 1% included Comerica (CMA) of Dallas, which closed at $39.27; Huntington Bancshares (HBAN) of Columbus, Ohio, at $8.27; KeyCorp (KEY) of Cleveland, at $11.34; PNC Financial Services Group of Pittsburgh (PNC), at $72.44; and Regions Financial (RF - Get Report) of Birmingham, Ala., which closed at $9.18.

In his firm's third-quarter earnings preview for U.S. Regional banks, Credit Suisse analyst Nick Karzon late on Wednesday wrote that "lower mortgage banking revenues are still not fully embedded in consensus EPS estimates," for many banks.

Third-quarter mortgage revenue is expected to drop in the double digits for many large banks, as refinance applications have slowed considerably on rising long-term interest rates. Gain-on-sale margins for new residential loans sold to Fannie Mae (FNMA) and Freddie Mac (FMCC) will also be sharply lower, because of the rise in long-term rates.

Karzon didn't change his third-quarter estimates for the regional banks covered by Credit Suisse, however, he estimated that BB&T (BBT) of Winston-Salem, N.C., would see its third-quarter mortgage loan origination volume decline to $7.0 billion from $9.3 billion during the second quarter. For Regions Financial, the analyst estimated origination volume would see a sequential decline to $1.5 billion from $1.9 billion, while for SunTrust (STI) of Atlanta, Karzon estimated a decline in mortgage loan origination volume to $7.4 billion in the third quarter from $9.1 billion in the second quarter.

JPMorgan's Settlement Saga

Shares of JPMorgan Chase (JPM - Get Report) rose 0.4% to close at 51.89, after an early report from the Wall Street Journal saying that the bank's eventual settlement of multiple criminal and civil investigations by the Department of Justice, other federal regulators and states' attorneys general could be as high as $11 billion. Settlement figures of between $3 billion and $11 billion have been bandied about in various media reports this week.

But Thursday was different, as JPMorgan Chase CEO James Dimon met with Attorney General Eric Holder. In a press conference following the meeting, Holder limited his prepared comments to "significant enforcement developments in the Justice Department's efforts to crack down on price fixing and bid rigging in the automobile parts industry."
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