NEW YORK – Bank of America Corp. and SunTrust Banks Inc. stand to lose the most on home-equity loans if housing prices and employment continue to drop, according to a report by International Strategy & Investment Group Inc.
Earnings may come under pressure because the Federal Reserve and Office of the Comptroller of the Currency increased scrutiny of home-equity portfolios to ensure they’re being valued properly, and default notices rose in August, according to analysts led by Ed Najarian.
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“If employment weakens more and home prices drop more, both the frequency of default and the severity of loss per default on home-equity loans could easily exceed the amounts assumed by banks in their current home-equity reserves and by bank analysts,” the report said.
Bank of America, the biggest U.S. lender by assets, is most vulnerable to home-equity losses among the largest banks, and SunTrust has the most risk among regional banks, Najarian wrote.
If home-equity losses increase by 20 percent, earnings at Charlotte, N.C.-based Bank of America could be reduced 7.5 percent this year, and Atlanta-based SunTrust’s could drop 8 percent, the report said.
Bank of America dropped 19 cents, or 2.6 percent, to $7.04 at 9:34 a.m. in New York Stock Exchange composite trading on Monday. SunTrust dropped 2.7 percent to $19.39, while the 24-company KBW Bank Index slid 2.4 percent.
