Bank Buybacks May Total $51B: Analyst

NEW YORK ( TheStreet) -- BernsteinResearch on Tuesday predicted mortgage repurchases could cost the U.S. banking industry $51 billion.

The report followed a similar one on Monday from Moody's, where the agency said that despite Bank of America's ( BAC) agreement on January 3 to buy back $3 billion in residential mortgages from Fannie Mae and Freddie Mac, the largest U.S. bank was still facing uncertainty over buybacks from monoline insurers and private investors.

John McDonald, a senior analyst with BernsteinResearch said in the Tuesday report that while Bank of America's deal with the government-sponsored mortgage giants "validated an 'almost done' view of banks' GSE repurchase loss," the tale was yet to be told on "how the process for private label put-backs will play out."

Fourth-quarter financial results aren't likely to provide much clarity either according to McDonald, since large banks "can't really start putting money aside for claims...if those claims haven't been made yet." The analyst added that his firm "sensed" that potential private label plaintiffs were still gathering documents for lawsuits and determining if pursuing claims would make economic sense.

Although bond insurers and the Federal Home Loan Banks have already brought lawsuits, "the banks may be loathe to give the appearance of 'admitting' any liability via any reserving on those matters," the report stated.

After describing procedural hurdles that will make it more difficult for private label claimants to obtain loan documents than it was for the GSEs - which had direct access to the loan files - McDonald went on to predict "total repurchase losses of $51b for the industry," including private-label losses of $23 billion and GSE losses of "$28 billion."

Among the largest banks, McDonald expects Bank of America's mortgage buyback losses to total $17 billion, followed by $6 billion in losses for JPMorgan Chase ( JPM), and $5 billion for Wells Fargo ( WFC.).

McDonald also reiterated his firm's "outperform," or buy ratings, for all three bank holding companies.

RELATED STORIES:



-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

To submit a news tip, send an email to: tips@thestreet.com.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

More from Stocks

Dow Logs Eighth Straight Drop as Stocks Slump

Dow Logs Eighth Straight Drop as Stocks Slump

Novo Nordisk Stock Rises 4% Over 2 Sessions

Novo Nordisk Stock Rises 4% Over 2 Sessions

Stock Market Just Took Another Beating -- Here's What You Need to Know

Stock Market Just Took Another Beating -- Here's What You Need to Know

This Is What's Hot Thursday - Stocks Slide, Intel's CEO Woes & Major Movers

This Is What's Hot Thursday - Stocks Slide, Intel's CEO Woes & Major Movers

Daimler's Profit Warning Should Terrify Traders Before Earnings Season Begins

Daimler's Profit Warning Should Terrify Traders Before Earnings Season Begins