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Bank Shares Soar on Europe’s Grand Debt Bargain

Bank shares lifted in the enthusiastic market response to news that European Union states reached a grand bargain to save the euro, but analysts speaking with _MReport_ pare jubilation with forecasts for fewer refinance applications and home purchases.


After two years of time spent in a debt crisis, European leaders cobbled together a third bailout measure to salvage debt-ridden Greece and prevent further peril for the continent's common currency.

The ""_Associated Press_"":http://www.youtube.com/watch?v=59IiWLuGpW4 reported that the deal prescribes 50-percent losses for Greek bondholders, nearly $100 billion in capital inflow for European financial institutions, and close to $1 trillion in bailout funds for debt-ridden countries opposite Greece, including Italy and Spain.

In response to the last-minute rescue, investors pushed the Dow Jones industrial average to end the day at about 12,208 points, some 339 points above less encouraging news yesterday. The Nasdaq and Standard & Poor's 500 indices followed the vote of confidence with surges of their own, wrapping up at approximately 2,738 points and 1,284 points, respectively.

Mortgage lenders shared in the excitement, with ""Citigroup"":http://www.citigroup.com/citi/homepage/ leading the way in a 9.70-percent rise that tied off shares at $34.17 each. ""Bank of America"":https://www.bankofamerica.com/ quickly followed in a 9.56-percent climb to $7.22 per share.

""Goldman Sachs"":http://www2.goldmansachs.com/ ranked third in a 9.47-percent upshot to $116.40 per share, tracked by ""JPMorgan Chase"":http://www.jpmorganchase.com/corporate/Home/home.htm, which


snagged an 8.31-percent updraft to close at $37.02 per share. ""Wells Fargo"":https://www.wellsfargo.com/ came in last among these with a 5.09-percent rise to end the day at $27.07 per share.

""The European debt situation was the darkest cloud on the horizon,"" ""Mike Fratantoni"":http://www.mbaa.org/MichaelFratantoni.htm, VP of research and economics with the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm, tells _MReport_. ""And this deal has the potential to take that away.""

He calls Europe's debt deal ""a psychological move in that it could make people more optimistic,"" saturating the markets with higher levels of consumer confidence at a time when the Conference Board recently reported sentiment falling to lows not seen since the financial crisis.

""The biggest effect is that it's good for global stock markets, because the risk they've seen is now seen as much smaller,"" adds ""Dan Dorrow"":http://track.com/profiles/dan_d/, head of research for Stamford-based ""Faros Trading"":http://www.farostrading.com/our_team.html.

He describes the overseas development as one that could encourage business growth, increase monthly payrolls, and rid the headlines of talk about a double-dip recession, which he forecasts as a ""modest"" one in such an event.

Not all news about the grand bargain merited praise from the analysts.

Asked whether borrowing costs would jump, Fratantoni says likely yes, citing a 25-basis point spike in Treasury yields, against which lenders and authorities traditionally benchmark mortgage rates.

""I expect we will see a substantial decline in refinance applications,"" he says. ""You'll also see some borrowers who were in the middle of an application and may not be able to get a rate as low as they expected.""

He also says that U.S. banks are unlikely to see a major pinch from the debt deal, although the nation's money market funds and inter-bank lending habits could take a hit.

Dorrow forecasts a market upswing despite the probability for falling mortgage rates.

""Employment will look a little bit better, and we will feel a bit wealthier,"" he adds. ""More confidence will lead to people making decisions ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô taking a risk and buying a house.""

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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