Bank Investigations Could Drag On, Says KBW

[Stocks-to-Watch]

President Obama announced a new mortgage fraud unit in Tuesday night’s State of the Union address, meaning banks could be taking heat on their actions during the mortgage crisis for the foreseeable futures. That’s a negative for the industry, wrote Keefe, Bruyette & Woods analyst Brian Gardner, who thought the speech was decidedly anti-bank.

The announcement appears to be a way for Obama to placate the attorneys general who have not yet signed onto a deal worth approximately $25 billion between the states and the big banks over foreclosure practices. Some AGs have declined to sign onto the deal because of concerns that it lets the banks off too easily. Nonetheless, the deal appears close to completion. The settlement would include Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C) and Ally Financial.

Arguably, any movement toward a deal and fewer lawsuits could be a good thing for banks. But Gardner also sees trouble brewing. Obama plans to appoint New York Attorney General Eric Schneiderman, one of the fiercest bank critics, to head the fraud unit, according to news reports.

“The announcement of this new group at the Justice Department suggests to us that the headline risk to banks coming from government investigations is unlikely to diminish in the near term, even after the mortgage settlement is announced. The tone of the SOTU was decidedly anti-bank, in our view. We think investors should expect that the industry will continue to be used as a foil through the election campaign.”

Original Article Source by Barrons.com