3 Things That Could Move Financial Stocks Today
NEW YORK (
) -- The
foreclosure settlement announced Thursday should continue to drive the big bank stocks as investors digest details of the agreement and individual bank's liability.
Bank of America
(BAC) - Get Report
bears the biggest share of the bill, with its commitment under the agreement was a significant $11.8 billion, with approximately $7.6 billion in borrower assistance, including targeted principal reduction, $1.0 billion for refinancing assistance to customers in the participating states, up to $1 billion to settle FHA claims, and approximately $2.25 billion in direct payments to state and federal governments and in borrower restitution, of which $1.9 billion would be an upfront cash payment," with the remaining $350 million only being paid if the company "failed to meet certain principal reduction thresholds over a three-year period."
The bank said it did not expect to make any additional reserves over those made in 2011.
JPMorgan Chase
(JPM) - Get Report
and
Wells Fargo
(WFC) - Get Report
will each commit to about $5.3 billion and said they had already reserved for the settlement.
Citigroup
(C) - Get Report
said its share of the compensation would be $2.2 billion. Citi will adjust its fourth quarter and full year 2011 financial results to reflect an additional $84 million (after tax) charge, to reflect a small portion of the cash under the settlement. Citi will also adjust its fourth quarter and full year 2011 financial results to reflect an additional $125 million (after tax) charge in connection with the resolution of related mortgage litigation, it said.
Analysts seemed to agree that the foreclosure settlement was a net positive, given its muted impact on financial statements as well as the fact that it gave some "closure" to an issue that had been weighing on bank stocks. The agreement however offers banks little immunity from future mortgage-related claims.
"While a release from securitization related litigation would have been nice, any expectation of such was probably unrealistic to start," Sandler O'Neill analyst Jeff Harte said in a note.
The analyst expects the impact of the settlement to be neutral where Bank of America, Citi and JPMorgan are concerned. "While we would not call a multi-billion settlement positive news, the settlement appears no worse than expected and is therefore unlikely to have a material impact on share prices. We view the upfront $5B cash settlement as manageable and suspect the banks would ultimately have incurred the principal reduction related losses through principal forbearance and net charge-offs anyway."
Investors will also await news on whether the other regional banks such as
US Bancorp
(USB) - Get Report
,
PNC Financial
(PNC) - Get Report
and
SunTrust
(STI) - Get Report
will join the deal.
Federal Reserve Chairman Ben Bernanke will speak at the 2012 International Builders' Show in Orlando Florida at 12:30 p.m. on Friday.
The Fed has been calling for more policy action to stimulate the housing market, which continues to be a drag on the economy.
The Obama administration has announced a series of measures in recent weeks including a new refinancing plan that would allow homeowners including those with private mortgages to refinance their mortgages at attractive rates so long as they are current on their payments. The plan needs to get congressional approval.
The Treasury also revised guidelines for the mortgage modifications, tripling the incentives paid to servicers who reduce principal on mortgages.
The
FHFA
has announced a pilot program to convert foreclosed homes owned by Fannie Mae and Freddie Mac to rental units.
The White House was also instrumental in stepping up the pressure on the states and banks to reach an agreement over deceptive foreclosure practices announced on Thursday. The settlement besides offering principal reductions and loan modifications and refinancing, will also introduce new servicer standards that would make foreclosure the last resort.
In the context of the recent measures, it would be interesting to see if Bernanke has a more favorable outlook for housing, which would clearly benefit the economy and bank stocks.
Greece was at an impasse with European Union officials over its latest bailout package, setting up another possibility of default for the country,
A group of European finance ministers said they would hold back 130 billion-euro ($173 billion) bailout for Greece until the county's political leaders began to implement promised austerity measures.
"In short: no disbursement without implementation," Luxembourg Prime Minister Jean-Claude Junker in a meeting Thursday, according to
Bloomberg
.
The next deadline for Greece to comply is Feb. 15, when finance ministers meet again in Brussels.
--Written by Shanthi Bharatwaj in New York
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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
