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Banks Face $31 Billion Loss On Mortgage Buybacks: Report

First Posted: 11/04/10 05:03 PM ET Updated: 05/25/11 07:10 PM ET

Us Foreclosure Mess

NEW YORK (Reuters) - The top U.S. banks could face up to $31 billion in losses from buying back bad mortgages, Standard & Poor's said in a report on Thursday.

Large U.S. banks are facing pressure to buy back soured home loans that they packaged into mortgage bonds and sold to investors.

Bank of America Corp and JPMorgan Chase & Co have the most exposure to such potential repurchase obligations, followed by Wells Fargo & Co, Citigroup Inc, US Bancorp and PNC Financial Services Group, S&P analyst Vandana Sharma wrote on Thursday.

The six companies could face up to $43 billion in total losses from mortgage buybacks through 2012, but they have already accounted for about $12.4 billion of those potential losses, according to the report, which cited a recent S&P study.

The potential mortgage buyback losses would affect the banks' future profits, but are "not likely to affect our view of the banks' capital adequacy," Sharma wrote.

But those losses on mortgage buybacks, combined with the effects of increased regulation and an expected decrease in net interest income, "will likely hamper the financial recovery of the U.S. banks in 2011 despite declining credit costs," Sharma concluded.

Shares of the six banks were trading up on Thursday afternoon. Bank of America was one of the top performers among bank stocks, trading up 3.7 percent at $11.95.

(Reporting by Maria Aspan, editing by Dave Zimmerman)

Copyright 2010 Thomson Reuters. Click for Restrictions.

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