A New York-based U.S. Attorney's suit against Wells Fargo (WFC) over its handling of mortgages insured by the Federal Housing Administration is unlikely to hit the bank's earnings hard, according to Compass Point Research & Trading.
The firm released a note on Wells Fargo after the U.S. Justice Department filed a civil fraud case against the mega bank Tuesday. The suit claims Wells Fargo concealed the true condition of 6,320 loans insured by the FHA and shielded the bank from having to pay the U.S. Housing and Urban Development Department $190 million to indemnify the FHA for some of its losses on the loans.
While the news stunned the markets, Compass Point does not expect a settlement in the matter to deal a significant blow to Wells Fargo financially.
"We do not expect this case to result in a major charge for Wells Fargo given the past history of the Department of Justice [in relation] to FHA civil fraud charges," Compass Point wrote in its note. "If Wells were to settle these charges for $190 million, it would only result in a 2 cent-per-share loss in earnings."
Compass Point even points out that the U.S. attorney's press release on the matter spells out several past settlements with CitiMortgage (C) for $158 million, Flagstar (FBC) for $132 million and Deutsche Bank (DB) and MortgageIT for $202 million.