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Big Banks: Settlement Fear Losers

NEW YORK ( TheStreet) -- SunTrust (STI - Get Report) of Atlanta was loser among major U.S. banks on Wednesday, with shares down nearly 3% to close at $33.64.

The broad indices all ended lower, dragged down in part by Caterpillar (CAT), which reported an 18% year-over-year drop in third-quarter revenue to $13.423 billion, with earnings-per-share declining 43% to $1.45. Caterpillar lowered its guidance for 2013, saying it expected full-year revenue to be down 17% to $11 billion.

"This year has proven to be difficult, with expected sales and revenues nearly $11 billion lower than last year," Caterpillar CEO Doug Oberhelman said in the company's earnings release. "We expect Resource Industries to be down close to 40 percent for the full year and Power Systems' and Construction Industries' sales to each be down about 5 percent," he said.

"Not only is mining down from 2012, the demand for equipment has been difficult to forecast," Oberhelman said, adding that the company early in 2013 had expected order rates to improve later in the year, "based on strong mine production for many commodities."

Settlements Won't Settle Risk for Big Banks

The KBW Bank Index (I:BKX) on Wednesday was down 0.7% to 64.68, with all but five of the 24 index components ending with losses. Big banks seeing the largest declines included JPMorgan Chase (JPM - Get Report), with shares down 1.6% to $52.75, Bank of America (BAC - Get Report), with shares down over 2% to $14.23, and Citigroup (C - Get Report), which was down 1.3% to close at $50.10.

By setting aside $9.15 billion during the third quarter for litigation reserves, JPMorgan Chase signaled an eventual huge settlement of with the Department of Justice, Federal Housing Finance Agency other federal regulators and states' attorneys general, over investigations of the company's mortgage lending and loan sales, along with those of Bear Stearns and Washington Mutual, which JPMorgan acquired during 2008. The total figure for that settlement could reach $13 billion, according to media reports.

But the Wall street Journal on Wednesday reported that a group of investors, including BlackRock (BLK) and Neuberger Berman are seeking "at least $5.75 billion" from JPMorgan Chase, to recover losses on mortgage-backed securities sold to them by the bank and the firms it acquired.
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