) -- It's easy to define which mortgage lenders will be affected by the wind-down and replacement of
: All of them.
It's harder to figure out which ones will be affected
- and nearly impossible to tell whether the effect will be a good one or bad one until Congress decides how it will overhaul the entire housing-finance system.
There are concerns that holders of so-called "agency" mortgage-backed securities (MBS) -- those notes issued by Fannie and Freddie -- could be left holding "orphans" if the securities are replaced by something new. On the other hand, the market for agency MBS is so huge and liquid that there's little chance investors wouldn't be able to buy or sell the securities if they needed to. Additionally, holding that high-quality mortgage debt to maturity, receiving reliable payments, isn't such a bad thing for fixed-income investors.
In any case, it's too early to say what will become of the U.S. housing finance system but change is a sure thing. To get an idea of which banks have the most skin in the Fannie-Freddie game,
examined exposure to agency MBS, relative to total assets. Those are mortgage bonds - as opposed to whole loans - guaranteed by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac or the outright government agency Ginnie Mae.
It's not perfect science, but it gives a sense of which banks are loaded up with agency MBS and will have to be most nimble to upcoming changes.
The data come from 83 banks' fourth-quarter filings with the
, via SNL Financial. Not all banks have reported their quarterly information yet, while others don't disclose the necessary level of detail, so the list is not based on a comprehensive examination of the industry.
However, it's worth noting that the banks with the most nominal exposure to agency MBS don't have the most exposure relative to their balance sheets. The banks with the most agency MBS are
Bank of America
, with a combined $429.2 billion. But agency MBS comprise just 6% to 10% relative to their massive, diverse balance sheets.
The average of the 83 banks whose data were available is 14.1% - meaning BofA, Wells and JPMorgan have less exposure than most. By contrast, the bank with the most exposure has more than 58% of its balance sheet tied up in agency MBS.
On the following pages are the
, based on the information currently available:
Oriental Financial Group
Oriental Financial Group
is a relatively small U.S. bank, but one of the biggest lenders in Puerto Rico.
The company offers traditional banking services, from deposits and mortgage lending to financial planning and corporate banking. Over 58% of the firm's $7.3 billion balance sheet is weighted in agency MBS, with $4.3 billion worth of exposure at Dec. 31. By contrast, its portfolio of whole, first-lien, one-to-four family residential mortgage loans was under $995 million.
Last year, the bank lost $18.2 million, or 49 cents per share, a reversal from its $18.1 million, or 75 cents per share, in earnings for 2009. The decline was largely due to a write down and a preferred stock conversion related to an acquisition. The company recently lifted its dividend and outlined a $30 million stock repurchase program.
Its shares have traded at $10.09 to $17.44 over the past 52 weeks, recently around $12.25.
Wall Street is bullish on the stock, with four of six analysts who track Oriental rating the shares a buy or strong buy and another two suggesting that clients hold their positions, according to Thomson Reuters. The average price target is $16.80, suggesting a conviction of more upside ahead.
had $4.6 billion worth of agency MBS on its balance sheet as of Dec. 31, nearly 49% of its total assets. By contrast, the Texas bank had $860 million worth of whole residential mortgage loans.
Last year, Prosperity earned $127.7 million, or $2.73 per share, up 14% from the previous year. CEO David Zalman said he was "very proud" of the company's performance and that bankers are "beginning to see traction on our loan growth initiative."
Over the past 52 weeks, Prosperity's stock has traded in a range of $28.27 to $43.66, recently around $42.
Wall Street is generally neutral on the stock at this time, with 15 of 20 analysts who cover Prosperity rating it a hold, another four suggesting clients add to positions and one saying it will underperform the market, according to Thomson Reuters. The average price target is $42.77.
Bank of Hawaii
Bank of Hawaii
had $6 billion worth of agency MBS at Dec. 31, nearly 46% of its total assets. Its portfolio of whole residential mortgage loans stood at $1.9 billion and the lion's share of Bank of Hawaii's income from securities came from those that are "held for sale," rather than those that are "held to maturity."
In 2010, Bank of Hawaii earned $184 million, or $3.80 per share, up 28% from the previous year. CEO Peter Ho cited better credit conditions and gradual improvements in Hawaii's economy, which is based largely on tourism.
Over the past 52 weeks, the bank's stock has traded in a range of $41.60 to $54.10, recently between $47 and $48.
Of a dozen analysts who track Bank of Hawaii's stock, nine rate it a hold, with one suggesting it will underperform the market and two advising clients to add to their positions, according to Thomson Reuters. The average price target is $49.73.
BOK Financial Corp.
had $8.4 billion worth of agency MBS as of Dec. 31, representing more than 35% of its total assets. That compares with $1.6 billion worth of whole loans.
Last year, the bank reported record earnings of $247 million, or $3.61 per share, up 23% from 2009. CEO Stan Lybarger cited a diversified fee-income stream, as well as an improvement in credit quality, for the increase in profitability. BOK's mortgage banking division originated $2.8 billion worth of new loans and its mortgage-servicing portfolio grew by $4.7 billion - up 70% from the previous year.
Over the past 52 weeks, BOK's stock has traded in a range of $42.56 to $56.58, recently around $51.50.
Wall Street isn't too bullish on the stock, with five of seven analysts rating it a hold, one suggesting it will underperform and one strongly advising clients to buy it, according to Thomson Reuters. The average price target is $55.80.
First Niagara Financial Group
First Niagara Financial Group
, a Buffalo, N.Y.-based regional lender, held $7.1 billion worth of agency MBS as of Dec. 31, representing nearly 34% of its balance sheet. By contrast, the company held $2.2 billion worth of whole loans.
First Niagara reported earnings of $140.4 million, or 70 cents per share, for 2010, more than double the previous year, thanks to a healthy boost from acquisitions as the company embarks on an aggressive expansion strategy. The bank also increased its dividend and reported loan growth across all its business lines. In reviewing the results, CEO John Koelmel said, "We ended the year on a high note."
Over the past 52 weeks, First Niagara shares have traded from $11.23 to $15.10, recently at the high end of that range.
Of a dozen equity analysts who cover First Niagara, seven are neutral on the stock and five suggest that clients add to their positions, according to Thomson Reuters. The average price target is $15.25.
SVB Financial Group
SVB Financial Group
is a small but diverse company, offering commercial, investment, merchant and private banking services in the U.S. and abroad. Its traditional consumer-lending operations in the U.S. occur through its banking subsidiary, Silicon Valley Bank.
The Santa Clara, Calif.-based lender ranks No. 6 in the list of banks most exposed to agency MBS, with $5 billion worth of such assets, comprising more than 28% of its balance sheet. By contrast, SVB Financial had just $260.8 million worth of whole mortgage loans on its books, as of Dec. 31.
Last year, the company earned $95 million, or $2.24 per share, compared to $22.7 million, or 66 cents per share in 2009. A big chunk of its earnings came from selling agency-backed MBS. CEO Ken Wilcox also cited "outstanding loan growth, high credit quality, and continued growth in deposits" as factors that helped the fourth quarter.
The company's stock has traded in a range of $36.72 to $56.68 over the past 52 weeks, recently around $55.40.
Of the 16 analysts who cover the stock, 11 suggest clients hold their position, five suggest adding to positions and none rate the stock a sell, according to Thomson Reuters. The average price target is $55.36.
Sterling Financial Corp.
Sterling Financial Corp.
, a Spokane, Wash.-based lender that's primarily engaged in traditional banking operations - loans, deposits and the like, in Washington, Oregon, Idaho, Montana and California.
The company held $2.6 billion worth of agency MBS as of Dec. 31, representing nearly 27% of its balance sheet. The company's portfolio of whole mortgage loans was more significant than other banks on this list, coming in at $1.1 billion, but still less than half its agency MBS holdings.
Sterling has been suffering as the housing crisis continues to plague states in the West and Northwest where it operates. The company was not profitable in 2010, but narrowed its losses to $756.1 million, or $53.05 per share, from $855.5 million, or $1,087.41 per share the previous year. More its interest income came from loans than MBS and mortgage-banking operations made up the biggest chunk of noninterest income.
CEO Greg Seibly said the company is working to reduce problem assets while improving capital levels.
Over the past 52 weeks, Sterling shares have traded in a range of 44 cents to $74, recently trading above $17. The company has had to issue more stock to boost capital and deal with its problem assets.
Wall Street isn't very bullish on the stock, with just two analysts covering the company, according to Thomson Reuters. One rates it a hold, and one believes Sterling's stock will underperform the market. The average price target is $17.75.
( SBIB) ranks just behind Sterling Financial in the banks most exposed to Fannie-Freddie changes. But soon, Sterling will no longer be an independent franchise, following its impending deal to be acquired by larger Southern banking rival
Sterling, a Houston-based commercial and consumer lender, operates strictly in Texas' major metropolitan areas. As of Dec. 31, the company held $1.3 billion worth of agency MBS, more than 25% of its balance sheet.
Sterling moved back into the black last year, reporting a profit of $704 million, or a penny per share, vs. a loss of $22.3 billion, or 28 cents per share, in 2009. The vast majority of its interest income came from loans, rather than securities, while most of its securities and loans were available for sale, rather than held-to-maturity.
Its stock has traded in a range of $4.34 to $9.37 over the past 52 weeks, soaring to the higher end of that range in mid-January after the Comerica acquisition was announced. The deal valued Sterling at $10-per-share, offering shareholders 0.2365 shares of Comerica common stock for each Sterling share they hold.
Now, 13 of 15 analysts who cover Sterling's stock rate it a hold, with just two suggesting that clients continue to add to positions, according to Thomson Reuters. The average price target is $8.33. Wall Street is similarly neutral on its soon-to-be owner, with 19 of 31 Comerica equity analysts rating the stock a hold, nine rating it a buy and three suggesting that clients sell shares, according to Thomson Reuters. The average price target is $41.10.
( NAL) is another small U.S. lender that won't exist as an independent entity by the time Fannie-Freddie reform occurs. The New Haven, Conn.-based bank has 25% of its balance sheet tied up in $2.3 billion worth of agency MBS.
However, unlike its other peers on this list, the bank's book of whole mortgage loans was even bigger than its agency MBS portfolio, at $2.7 billion.
During 2010, NewAlliance's earnings climbed 25% from the previous year, to $58 million or 59 cents per share. Its bottom line would have been higher if not for merger-related expenses. CEO Peyton Patterson called it "a banner year with record earnings."
NewAlliance shares have traded in a range of $10.98 to $16.10 over the past 52 weeks, touching the higher end of that range in recent sessions. The stock began a dramatic ride upward in mid-August, when NewAlliance and First Niagara announced the $1.5 billion stock transaction, which would grant NewAlliance shareholders 1.1 shares of First Niagara. At the time, it valued NewAlliance at $14.09 per share.
Six of seven analysts who track the stock rate it a hold, with one suggesting clients add to positions, according to Thomson Reuters. The average price target is $14.25.
, a Waterbury, Conn.-based bank that operates in the Northeast, has $4.3 billion worth of agency MBS on its balance sheet, about 24% of total assets.
The lender flipped to profitability last year, reporting net income of $49.4 million, or 60 cents per share, vs. a loss of $85.3 million, or $2.14 per share, in 2009. The company reported better margins, better asset quality and strong loan and capital growth through 2010.
Over the past 52 weeks, its share price has ranged from $15.55 to $23.73, at the higher end of that range in recent weeks. An analyst
downgraded the company to neutral last week, citing valuation concerns. Now 10 of the 14 analysts who cover the stock rate it a "hold," with just four recommending that clients buy the stock, though none recommend that clients sell, according to Thomson Reuters. The average price target for Webster Financial is $23.42, roughly in line with where it is trading now.
-- Written by Lauren Tara LaCapra in New York
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