Nomura Securities on Universal Banks: Home Equity Loans, Without the Equity - Sizing Up the Home Equity Conundrum
JPM Hot Sheet
Rating Summary:10 Buy, 5 Hold, 2 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 20 | Down: 11 | New: 38
Nomura Securities on Universal Banks: Home Equity Loans, Without the Equity -
Sizing Up the Home Equity Conundrum
Nomura analyst, Glenn Schorr, said, "Regulators Stepping Up Scrutiny of Home Equity Reserves? Recent press reports have indicated that regulators may be increasing their scrutiny of home equity related reserves. With ~$750 billion home equity/2nd lien mortgages outstanding at FDIC-insured institutions this is not a small issue. But the banks have built sizable reserves already and we believe they will be given time to address any shortfalls over time. It may be expensive, but we don’t see this as a ticking time bomb. We have stressed cumulative losses to ~25% in the related portfolios at the big banks and only get to a 1% (Citi) - 9% (WFC) immediate incremental hit to TCE."
"This Could Be an Expensive Problem, but Not a Ticking Time Bomb - We think for JPMorgan (NYSE: JPM), BofA (NYSE: BAC), Wells Fargo (NYSE: WFC), Citi (NYSE: C) , taken together, the after-tax cost (in excess of current reserves) could reach as high as ~$23 billion. Keep in mind the SNL consensus provision estimates for BAC, JPM, Citi, and WFC through 2013 also equals ~$95 billion so this is not to imply that we see this as fully incremental to current expectations. Also, the sizable 1st lien concentrations in these portfolios and the fact that so many of these loans remain current will likely make this estimate an aggressive one. In addition, these losses will not be incurred immediately, but more likely over years as these portfolios mature, giving banks a generous timeline to further strengthen their reserves related to this portfolio."
Discover Wall Street's best ratings calls with the pros - Ratings Insider Elite. Free Trial!
Sizing Up the Home Equity Conundrum
Nomura analyst, Glenn Schorr, said, "Regulators Stepping Up Scrutiny of Home Equity Reserves? Recent press reports have indicated that regulators may be increasing their scrutiny of home equity related reserves. With ~$750 billion home equity/2nd lien mortgages outstanding at FDIC-insured institutions this is not a small issue. But the banks have built sizable reserves already and we believe they will be given time to address any shortfalls over time. It may be expensive, but we don’t see this as a ticking time bomb. We have stressed cumulative losses to ~25% in the related portfolios at the big banks and only get to a 1% (Citi) - 9% (WFC) immediate incremental hit to TCE."
"This Could Be an Expensive Problem, but Not a Ticking Time Bomb - We think for JPMorgan (NYSE: JPM), BofA (NYSE: BAC), Wells Fargo (NYSE: WFC), Citi (NYSE: C) , taken together, the after-tax cost (in excess of current reserves) could reach as high as ~$23 billion. Keep in mind the SNL consensus provision estimates for BAC, JPM, Citi, and WFC through 2013 also equals ~$95 billion so this is not to imply that we see this as fully incremental to current expectations. Also, the sizable 1st lien concentrations in these portfolios and the fact that so many of these loans remain current will likely make this estimate an aggressive one. In addition, these losses will not be incurred immediately, but more likely over years as these portfolios mature, giving banks a generous timeline to further strengthen their reserves related to this portfolio."
Discover Wall Street's best ratings calls with the pros - Ratings Insider Elite. Free Trial!
You May Also Be Interested In
- UBS Raises Price Target and Estimates on Williams-Sonoma (WSM); Positive Momentum Is Beginning To Pick Up
- Barclays Acknowledges Positive Q4 Results From Ralph Lauren (RL); Expect FY13 To Face Several Top Line Headwinds
- UBS Maintains a 'Buy' on Express Inc. (EXPR); A Misstep, But Still A Consistent Performer
Create E-mail Alert Related Categories
Analyst CommentsRelated Entities
JPMorgan, Citi, Bank of America, Nomura, FDIC, Wells FargoSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
