NEW YORK (AP) -- Shares of First Horizon National Corp. rose Tuesday on investor optimism that the bank's plans to take a hefty charge to boost its mortgage repurchase reserve will help alleviate some of the uncertainty surrounding it.
THE SPARK: First Horizon said late Monday that it would take a $272 million pre-tax charge during the current quarter, with about $250 million of that going toward increasing the bank's mortgage repurchase reserve.
THE BIG PICTURE: First Horizon said in a conference call with investors that as a result of new information provided by Fannie Mae, it's able to better estimate its probable losses related to the government-sponsored mortgage financing company, as well as Freddie Mac.
The charge will bring the bank's net repurchase reserve to $351 million, which includes the effects of about $60 million expected realized losses in the second quarter, First Horizon said.
In the last couple of years, many lenders have been forced to buy back billions of dollars of mortgage securities that the banks sold to Fannie and Freddie during the real estate boom and bust. Fannie and Freddie have claimed that loans were made improperly by the lenders.
However, regulators are now worried that banks are cutting back on lending because of the uncertainty surrounding how much mortgage securities they will have to repurchase from the agencies in the future. In an April survey of loan officers by the Federal Reserve, a significant number of bank officials cited the buybacks as a reason for not lending.
THE ANALYSIS: Sterne Agee analyst Todd Hagerman backed his "Neutral" rating and $9 price target for First Horizon, saying that the move "represents a first step in ultimately putting to rest a persistent earnings headwind."
He added that based on the company's projections, the $351 million reserve appears to be enough to absorb its mortgage repurchase-related losses into next year.
Citi analyst Josh Levin also backed his "Neutral" rating for the bank. He said that while the amount of the charge may be more than some investors expected, First Horizon shares could rise over the long-term if the bank can convince investors that it won't have to take additional charges down the road.
THE SHARES: Up 47 cents, or 5.8 percent, to $8.38 in heavy midday trading, after peaking at $8.41 earlier in the day. Over the past 52 weeks, the bank's shares have traded between $5.38 and $10.99.
Over the past three months, First Horizon shares have lost about 27 percent of their value.
