Profits of Financial Companies Hit by Losses in Mortgage Loans
Financial companies Bank of America, Wells Fargo and JPMorgan Chase are expected to record almost $30 billion of combined losses from home equity loans. The estimated loss amount is almost the same as the projected profits of the banks for 2010 as predicted by financial industry analysts.
The estimated $30 billion combined loss was calculated by research company CreditSights Inc. According to the research firm, loan write downs will greatly affect the banks’ earnings for the year. CreditSights also stated that the anticipated losses from home equity resulted from the housing market bust that gripped the whole country.
In related developments, the U.S. House Financial Services Committee will hold a hearing regarding the effect of second lien loans on home owner debts and on efforts to end the foreclosure problem. Committee Chairman Barney Frank has sent letters to banks asking them to recognize losses in an effort to pave the way for modification of mortgages.
Four of the biggest banks in the U.S., which include Bank of America and Wells Fargo, are in control of more than 40% of second lien home loans which total $1.1 trillion.
Meanwhile, the American Bankers Association has reported a record increase in home equity mortgage loan delinquency for the fourth quarter. The increase is expected to impact the earnings of the three financial companies.
A number of financial analysts have predicted that the biggest lender of home equity loans, Bank of America, will likely report a 10-cent per share profit for the first quarter of the year. Meanwhile, mortgage lender Wells Fargo is projected to report an earnings increase of 42 cents per share for the first quarter.
Analysts who were quizzed by Bloomberg about the finance firms’ performance further stated that they are mostly optimistic about the banks’ situations because these institutions have booked loan loss expenses early on. These expenses can help absorb the effects of the loan write downs without diminishing the earnings of the banks, analysts have asserted.
Despite the expected losses due to home equity mortgage loans, major financial companies in the U.S. have seen financial stocks’ prices rise as investors continue to believe that the financial institutions will be able to buy shares back and restore payments of dividends.
