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Markets, Analysts React to the FHFA Suits

Responding to news that the ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA) may seek as much as $200 billion from banks in suits filed Friday, stocks for a number of the 17 companies-turned-defendants sank Tuesday, with Deutsche Bank leading the way down midday. Market watchers across the country offered up their reactions, with some portending considerable fallout for the economy and others waving away notions that a settlement by the banks would weaken the housing recovery.

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Stocks for ""Deutsche Bank"":http://www.db.com/usa/ hurtled into the negatives at 8.13 percent, with shares for the mortgage giant approaching $33.32 midday. ""Barclays"":http://www.barcap.com/, another defendant, followed with a 7.45-percent dip in stocks, with shares in lockstep at $9.81 at the time of writing. ""Morgan Stanley"":http://www.morganstanley.com/ saw each of its shares close at $15.29, as stocks fell 4.20 percent into the red midday.

""JPMorgan Chase"":http://www.jpmorganchase.com/corporate/Home/home.htm, ""Citigroup"":http://www.citigroup.com/citi/homepage/, and ""Goldman Sachs"":http://www2.goldmansachs.com/ each fared better, seeing their share hover at $33.29, $27.61, and $103.98, respectively, with stocks falling to 3.84 percent, 2.75 percent, and 2.88 percent, also respectively.

Analysts offered up mixed reactions to the suits.

Paul Miller, managing director with ""FBR Capital Markets & Co."":http://www.fbr.com/ and group head of financial services, issued a note Tuesday that forewarned of economic perils that could result from litigation, according to ""_Bloomberg News_"":http://www.bloomberg.com/news/2011-09-06/mortgage-claims-by-u-s-impede-recovery-must-be-halted-fbr-s-miller-says.html.

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The news service quoted Miller as writing in his note that ""Fannie Mae"":http://www.fanniemae.com/, ""Freddie Mac"":http://www.freddiemac.com/, and their federal conservator ""are acting in their own self-interest as opposed to that of the broader U.S. economy.""

He said that a settlement could ""drain capital from the banking system, and... cause banks to overly tighten credit standards, which pushes potential home buyers [sic] onto the sidelines.""

""If we are to get the housing market working again,"" he added, according to _Bloomberg_, ""it's our opinion that the FHFA and the government-sponsored enterprises need to stop punishing banks for their lending practices from several years ago, even though they may have a legal right to do so.""

Miller could not be immediately reached for comment.

_Bloomberg_ also quoted Richard Bove, an analyst with ""Rochdale Securities LLC"":http://www.rochdalesecurities.com/, as ascribing more sinister motives to the FHFA, which he says shows that the federal government ""is committed to breaking up the banking industry."" He adds that litigious decisions by the FHFA may force the financial institutions to cease lending to borrowers, according to the news service.

Speaking to _MReport_, Mark Calabria, director of financial regulation studies with the ""Cato Institute"":http://www.cato.org/, downplays the effects of litigation, saying that the suits won't ""do anything to the housing recovery. If this has any impact on the economy, it will likely reduce the capital for the largest banks and reduce their lending accordingly.""

He describes a $41-billion figure reported Friday by the Los Angeles Times as a dent in the multi-trillion-dollar economy, which ""in itself isn't going to reduce the economic recovery.""

Whither the resolutions for these expensive suits?

Calabria says that the GSEs and FHFA want the banks to ""cough up some money [to] help Fannie and Freddie get out of their hole,"" resulting in a mega settlement that will satisfy the conservator.

""We're talking simply a transfer of money from the banks to the government,"" he adds.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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