PNC Financial Services Group Inc., the seventh-largest U.S. bank by deposits, recorded a $254 million pretax provision in the fourth quarter for expected increases in mortgage-repurchase demands from Fannie Mae and Freddie Mac.
The provision boosts the reserve to $614 million as of Dec. 31, according to a regulatory filing today from the Pittsburgh-based lender. PNC shares dropped as much as 2.1% before rebounding to trade virtually unchanged at 10:14 a.m. in New York. The shares had risen 3.3% this year through yesterday.
PNC, run by CEO Jim Rohr, had previously indicated repurchase demands from the government-backed enterprises were declining. Chief financial officer Richard Johnson said in November that the bank is seeing a “trending down” of demands from Fannie Mae and Freddie Mac. The requests peaked in March of last year, and losses probably reached their high in May, he said at the time.
“The mortgage putback charge could have been larger than what some were expecting,” said Terry McEvoy, an analyst for Oppenheimer & Co., adding that there was no consensus estimate for that figure.
Last June, PNC increased its mortgage-repurchase reserve by $350 million to cover demands for refunds on faulty loans. Banks sell mortgages to investors and government-backed enterprises with a promise to buy them back if data on borrowers, their income or the property later turn out to be false.
PNC said transactions related to mortgage banking and other activities reduced fourth-quarter earnings $0.47 a share. The actions include a charge of about $70 million resulting from a foreclosure agreement with federal regulators, according to the filing. The bank also recorded a gain of $130 million from the sale of a portion of its investment in Visa Inc.
U.S. regulators struck a deal with 10 mortgage servicers including JPMorgan Chase & Co. and Bank of America Corp. earlier this week in which lenders must provide $5.2 billion in mortgage assistance and $3.3 billion in direct payments to wronged borrowers. Citigroup Inc., the third-largest U.S. bank by assets, said the settlement will result in a $305 million pretax charge.
PNC said fourth-quarter earnings will exceed the First Call mean estimate of $1.57 per share. The average estimate of 30 analysts surveyed by Bloomberg is for fourth-quarter per-share profit of $1.61.