Settling the foreclosure fiasco could set the biggest banks back a cool $3.7 billion.
So says Janney Capital Markets analyst Guy LeBas, who writes in a note to clients Monday that he continues to view the unrest over banks’ mortgage missteps as a headache rather than a brewing crisis.
But an expensive headache it will be: two banks, the giant mortgage lenders Bank of America and JPMorgan Chase , could end up paying $1 billion each, according to LeBas’ back-of-the-envelope calculation.
The No. 3 mortgage bank, Wells Fargo , is likely to pay as much as $900 million, he estimates. That’s the highest cost for any major bank as a proportion of Tier 1 capital, the funds regulators insist be set aside to help a bank through a downturn.
The estimate comes as Wall Street is finally coming to grips with the scale of the banks’ foreclosure follies. Bank shares have tumbled over the past week, after JPMorgan Chase CEO Jamie Dimon conceded his bank may have to pay penalties to settle legal inquiries by the 50 state attorneys general.
LeBas bases his forecasts on the case of Ally Bank, the taxpayer-owned lender that’s being sued by the Ohio attorney general for $25,000 per false foreclosure affidavit. Though the bank’s 46,000 foreclosures in the first half of 2010 alone suggest Ally’s exposure runs to $1.15 billion, LeBas says that’s probably way too high.
LeBas acknowledges that there’s no way of really quantifying the exposures faced by lenders ranging from Bank of America and Wells to Fifth Third and Capital One . An investigation into the banks’ missteps has only just begun, and the costs of settling probes likely won’t be evenly distributed, with some banks running looser ships and having to pay more as a result.
What’s more, the Janney estimates consider only legal costs, leaving alone other costly factors including:
But while those factors could keep the pressure on bank stocks for some time, they aren’t likely to lead to a crisis, in LeBas’ estimation: