Big Banks Show 'Worst Case' Strength: Financial Winners

NEW YORK ( TheStreet) -- Stocks of the nation's largest banks were strong on Tuesday, after Drexel Hamilton analyst David Hilder wrote in a note to clients that the nation's largest banks could easily cover their worst estimates of "reasonably possible losses" from mortgage putback demands and litigation.

Shares of Citigroup ( C) rose over 2% to close at $49.37. Large banks showing gains of close to 2% included Morgan Stanley ( MS), which closed at $26.27, and Goldman Sachs ( GS), closing at $154.76.

The remaining members of the "big four" U.S. banking club, which also includes Citigroup, all saw shares rising 1%: Shares of Bank of America ( BAC) closed at $14.25, while JPMorgan Chase ( JPM) closed at $51.13 and Wells Fargo ( WFC) closed at $41.39.

Based on the worst-case estimates of the big four, Hilder wrote that maximum possible pretax mortgage repurchase and litigation losses of $7.5 billion, would only amount to 21% of the company's estimated 2013 pretax earnings of $35.1 billion. Maximum losses of $6.8 billion to Bank of America would amount to 37% of 2013 pretax earnings, while maximum losses of $5.2 billion to Citigroup would amount to 23% of earnings.

For Wells Fargo, maximum possible pretax mortgage repurchase and litigation losses of $3.3 billion would amount to just 10% of the company's estimated 2013 pretax earnings of $33.1 billion, according to Hilder.

"We are reiterating our Buy ratings on the four largest U.S. banks," Hilder wrote.

The KBW Bank Index ( I:BKX) was 0.5% to close at 62.50, with winners and losers roughly split.

The broad indices all ended with gains. The market on Tuesday pulled back from early gains, but gained strength during the last hour of trading, after leading members of the House of Representatives showed no signs of "going wobbly" on President Obama's call for action against the government of Syria for its alleged use of chemical weapons.

Following a meeting at the White House, Speaker of the House John Boehner (R., Ohio) said he would vote to authorize President Obama to order an attack forces loyal to Syrian president Bashar Assad. Boehner said "my colleagues should support this call for action."

The House Speaker said "it's pretty clear to me that the United Nations is unable to take action, and NATO is not likely to take action."

"The use of these weapons has to be responded to, and only the United States has the capability and the capacity to stop Assad and warn others around the word that this type of behavior is not to be tolerated," Boehner added.

President Obama during the meeting said he had "we have high confidence that Syria used, in an indiscriminate fashion, chemical weapons that killed thousands of people, including over 400 children, and in direct violation of the international norm against using chemical weapons." He added that he was planning for a "limited, proportional step that will send a clear message not only to the Assad regime, but also to other countries that may be interested in testing some of these international norms, that there are consequences."

House Minority Leader Nancy Pelosi (D., Calif.), after the meeting said deterring the use of weapons of mass destruction is "a pillar of our national security," and that "we have to send a very clear message to those who have weapons of mass destruction of any variety that they should forget about using them."

Pelosi said "we must respond," but added that "the American people need to hear more about the intelligence that supports this action, and that is that the responsibility for this chemical weapons use is clearly at the feet of Assad.

Finally, Pelosi used very strong language in supporting the president: "Waiting for the UN and waiting for Russian president Vladimir Putin -- the slowest ship in the convoy in reacting to the use of chemical weapons by Assad -- is a luxury we that we cannot afford."

No attack was imminent, as the president said he would wait until Congress votes on the matter, which cannot take place until the majority of members return from vacation next Monday.

Later on Tuesday, Secretary of State John Kerry and Secretary of Defense Chuck Hagel testified before the Senate Foreign Relations Committee. Kerry said that countries bordering Syria were hoping "we would keep the world's promise" to punish any use chemical weapons.

"We all agree that there will be no American boots on the ground," Kerry said."

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

>Contact by Email.

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.

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