* JPMorgan down 3.4 pct
* Broad declines come after regulator sues 17 banks
* FHFA sued over $200 bln in bonds
* BofA shares dip below pre-Buffett investment level
(Adds byline, analyst comments, background; updates share
By Joe Rauch
CHARLOTTE, N.C., Sept 6 JPMorgan Chase & Co and
Bank of America led bank stocks lower on Tuesday after mortgage
lawsuits filed late on Friday aggravated investor fears that
the biggest banks could face massive legal liabilities.
Late on Friday, the Federal Housing Finance Agency sued 17
large U.S. banks and financial institutions over $200 billion
in subprime mortgage-backed bonds, now owned by Fannie Mae
FNMA.OB and Freddie Mac FMCC.OB. [ID:nN1E7810JZ]
JPMorgan (JPM.N) shares declined 3.4 percent to close at
$33.44 and Bank of America Corp (BAC.N) dropped 3.6 percent to
$6.99, outpacing a 2.5 percent fall for Citigroup Inc (C.N)
The drop in the share prices of JPMorgan and Bank of
America -- the two biggest U.S. banks -- exceeded the 1.7
percent decline in the KBW Bank Index .BKX and 0.7 percent
decline in the broader S&P 500 Index .SPX.
Analysts said investors are becoming concerned the industry
faces a long slog of litigation due to toxic mortgages. The
suit by Fannie Mae and Freddie Mac's regulator is just the
latest addition to those worries.
"People are realizing there are no easy solutions and this
could drag on for years," said Matt McCormick, portfolio
manager with Cincinatti-based Bahl & Gaynor Investment
In August, investors pounded the shares of Bank of America
-- the largest U.S. bank -- on fears it would need to raise as
much as $50 billion in capital to absorb mortgage losses and
fight related litigation.
U.S. banks have recently faced more lawsuits from investors
who purchased mortgage-backed securities during the housing
boom that are now comprised of toxic home loans.
Investors allege the loans were improperly made and failed
to meet guarantees made by the banks at the time they were
Those guarantees -- known as representations and warranties
-- are now at the heart of billions of dollars of repurchase
But until Friday, regulators had not sued over the issue.
"When you have a regulator suing on behalf of the parties
it regulates, that's bad news," said Jefferson Harralson, a
bank analyst with Keefe, Bruyette & Woods Inc.
The legal worries have been particularly acute at Bank of
America, which bought Countrywide Financial Corp -- the
country's largest subprime mortgage lender -- in July 2008.
The shares of the Charlotte, North Carolina-based bank have
lost half their value this year and plunged by more than 20
percent in early August after insurer American International
Group Inc (AIG.N) filed a $10 billion suit over mortgages.
The plunge was temporarily arrested by a $5 billion
investment in the bank by billionaire Warren Buffett, announced
on Aug. 25. The news sent Bank of America shares up by as much
as 26 percent. [ID:nN1E7850KT]
But on Tuesday, Bank of America shares dipped back to the
closing price on the day before the Buffett investment was
(Reporting by Joe Rauch; editing by Andre Grenon)