Updating Estimates for Mortgage Repurchase Adjusting Estimates for $BAC, $JPM, $WFC and $PNC

Updating Estimates for Mortgage Repurchase
Adjusting Estimates for BAC, JPM, WFC and PNC

• Mortgage Repurchase Impact — In conjunction with the report published today titled: “US Banks: Mortgage Repurchase Risk: Mkt Concerns for Bank Reps & Warranties Risk Seem Overdone” we are reducing our estimates for the mortgage repurchase reserve headwind expected to continue into 2010. In this companion note we analyze the mortgage repurchase risk in depth and estimate $20 bil of remaining mortgage repurchase reserve risk for the banking industry, and $15 bil for the 6 banks in our coverage universe.

• Bank of America — We are reducing our 1Q10 estimate by $0.05 to $0.06 to incorporate mortgage repurchase hit of ~$550 mil. We estimate a mortgage repurchase headwind of ~$2.3 bil in 2010 vs. $1.9 bil in 2009. We are also reducing our investment banking estimate due to lower volumes in the quarter. We are reducing our 2010 estimate by $0.15 to $0.50 (and 2011 by $0.05 to $2.00) to reflect mortgage repurchase costs.

•JP Morgan — We trim our 1Q10 estimate by $0.04 to $0.60 (vs consensus of $0.64) with mortgage repurchase expenses of $1-1.5 bil in 2010 (vs $1.6 bil in 2009), which we see falling to $400 mil in 2011. Given muted primary I-banking volumes and a tougher environment for equity trading YTD, we also trim our 1Q10 I-banking revenue estimates by $900 mil to $7.7 bil. We also reduce our full-year 2010 estimate by $0.10 to $2.70 (vs cons of $3.00) due mostly to mortgage repurchase costs. Our 2011 estimates remain unchanged at $5.15 (vs consensus of $4.73), and we continue to see $6.50 of normalized earnings power (adjusting for normal capital structure).

• Wells Fargo — We are reducing our 1Q10 estimate by $0.03 to $0.46 (vs. consensus of $0.41) to take into account continued mortgage repurchase costs. We estimate mortgage repurchase costs of $1-1.5 bil in 2010 vs. $930 mil in 2009. We are lowering our 2010 estimate by $0.20 to $1.80 to reflect headwinds
from mortgage repurchase (~$0.15) and NSF/overdraft regulation (incremental $0.05). We are also reducing 2011 by $0.15 to $2.70 and 2012 by $0.10 to $3.15 to reflect mortgage repurchase and NSF/overdraft impacts.


• PNC — We reduce our 1Q10 estimate by $0.01 to $0.15 to adjust for slightly revised mortgage repurchase costs. We estimate a mortgage repurchase expense of ~$90 mil in 2010 vs. an estimated $50 mil in 2009. We are also adjusting estimates for the overallotment option exercised on March 4th for 8.3 mil, or $450 mil. We are reducing our 2010 estimate by $0.10 to 4.10 to reflect mortgage repurchase costs.




Adjusting Estimates for BAC, JPM, WFC and PNC