CHARLOTTE, North Carolina (Reuters) - U.S. banks could face as much as $39 billion in losses if a series of lawsuits by the Federal Housing Finance Agency over soured mortgage bonds is successful, according to an analyst estimate.
The early estimates highlight potentially billions in additional losses U.S. banks might incur from soured mortgages, which helped drive a broad industry sell-off on Tuesday.
On Friday, FHFA sued 17 banks, alleging misrepresentations involving about $196 billion of mortgage-backed securities sold to Fannie Mae and Freddie Mac, the U.S. government-run mortgage investors which it oversees.
In the lawsuits, FHFA did not disclose what it was seeking in recoveries.
On Tuesday, the FHFA said in a statement it would be “premature and potentially misleading” to estimate any recoveries from the banks, but noted any amounts would be determined through the legal process.
John McDonald, bank analyst at Sanford Bernstein, said in a research note on Tuesday the largest banks could face billions in additional costs in his worst case estimate.
McDonald said that in a similar case filed against UBS earlier this year, the FHFA claimed $900 million in damages from $4.5 billion in mortgage bonds.
Using that ratio, McDonald concludes the banks could face $39 billion in losses, including $11.5 billion at Bank of America Corp, $6.5 billion at JPMorgan Chase & Co and $700 million at Citigroup Inc.
McDonald was not immediately available for comment.
But early opinions on the lawsuit’s potential impact vary widely, and analysts said the ultimate amount will depend on an unpredictable court process.
For instance, Keefe, Bruyette & Woods Inc analyst Bose George estimated in a research note that banks could face as much as $60 billion in losses from the FHFA lawsuits.
George projected a 30 percent loss rate on FHFA’s claims.
Others increased their total estimates on Tuesday for what the industry faces in repurchase claims beyond the FHFA suit.
FBR Capital Markets boosted its worst case estimate, saying that banks will record total mortgage repurchase losses of $121 billion, up from $104 billion.
The four largest banks will also face a larger share of those claims, FBR Capital Markets projected, with those banks recording 60 percent of the losses, up from 40 percent.
Reporting by Joe Rauch; Editing by Richard Chang