Banks Stocks Fall After Record Settlement

Published on Thursday, 09 February 2012 17:15 Written by David Becker

New York, February 9^th (TradersHuddle.com) – The deal is the largest government settlement with an industry since a deal with the tobacco industry in 1998.  The agreement covers five banks, which include major players such as Bank of America, J.P. Morgan Chase and Wells Fargo. Together, the five banks handled mortgage payments on 55% of outstanding home loans.

The settlement involves billions, payable to borrowers, states and the federal government. The deal allots payments to borrowers who went through foreclosure between September 2008 and December 2011.

The settlement also calls for the banks to create loans and aid for borrowers who previously did not have access to funding.  Overall approximately 1 million borrows will benefit from the settlement and banks will face tighter scrutiny when dealing with borrowers going through foreclosure. 

The financials moved higher at the beginning of the trading session, as the Bank of England increased the size of its quantitative easing program.

JP Morgan (NYSE: JPM) released earnings that were in line with expectations during January.  The stock price crossed through technical resistance near 38.50 early in the trading session, but was unable to hold on to gains, as the new of the settlement pushed it back into the 38.50 - 36.20 range.

Bank of America (NYSE: BAC) shares have moved higher and closed above the 200-day moving average.  The share price is still inexpensive at 0.8 times book value, and 11 times the consensus 2012 EPS estimate of 72 cents. 

Wells Fargo (NYSE: WFC) beat earnings expectations but has been unable to clear resistance levels at the top end of the current range near $30.80.  A close above $31 could be considered a break out for the stock price and would likely test weekly resistance levels near $33.70.