Mortgage Settlement Could Buoy BofA Most: Traders
Again, banks landed on the trader radar after 5 of the nation’s largest firms agreed to amassive settlement, ending a government probe into abusive foreclosure practices.
Under the agreement, Bank of America, JPMorgan Chase , Wells Fargo, Citigroup and Ally Financial will reduce loans for nearly 1 million households that owe more than their homes are worth.
Although the terms of the settlement are somewhat complex, RBC analyst Gerard Cassidy tells us the takeaway for investors is simple.
“This is another log that comes off the wood pile,” he says. And banks are under a pile of, errr.. wood.
But of the 5 banks listed above, the Fast Money traders think Bank of America may have the most to gain, simply because it was so beaten down.
“I wouldn’t sell BofA anymore,” says Joe Terranova. “The challenges it faces are well known and it's priced in." To support his thesis, Terranova points to the technicals which he finds constructive. "This is the 2nd consecutive day BofA has closed above the 200-day.”
Karen Finerman agrees. She's a long time BofA shareholder and believes the stock has considerable upside. “It’s a premiere franchise,” she says. And at 1 times book, she thinks BofA screams value. “The stock should have never traded down to $5 in the first place,” she says.
Also Finerman sees another catalyst for upside. She thinks gains could also be generated by a belief that the overseas financial crisis had stabilized. “Don’t forget the Street was shorting BofA as a proxy for European banks that they couldn’t short."
Jon Najarian also expects more gains due to positive options activity.“Option investors are continuing to make bullish bets,” he says.
Only trader Tim Seymour is cautious. He says, “I don’t think the settlement lifts all the clouds looming over this stock.” And he reminds, that BofA already had a big run. I not would dive in head first because of these developments.”
If you’re wondering what some of those other storm clouds may be, Gerard Cassidy suggests keeping an eye on the Volcker rule; “that’s the next big log that has to come off the pile,” he says.
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Trader disclosure: On Feb. 9, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Terranova is long VRTS; Terranova is long TBT; Terranova is long IBM; Terranova is long EMC; Terranova is long AXP; Terranova is long TRLG; Terranova is long AAPL; Terranova is long SNDK; Terranova is long MCD; Terranova is long OXY; Terranova is long FXE; Terranova is long CNX; Terranova is long SBUX; Terranova is long SU; Terranova is long CSCO; Terranova is long UNG Puts; Najarian is long AAPL; Najarian is long BAC; Najarian Is long JPM; Najarian is long CSCO; Najarian is long EMC; Najarian is long VMW; Najarian is long AAPL; Najarian is long DMND; Najarian is long CIGX; Najarian is long CBOE; Najarian is long CME; Finerman’s fund is long BAC; Finerman’s fund is long JPM; Finerman’s fund is long IBM; Finerman’s fund is long HPQ; Finerman’s fund is short SPY; Finerman’s fund is short MDY; Finerman’s fund is short IWM
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