UPDATE: Compass Point Initiates Flagstar Bancorp with Sell Rating on Continued Challenges

In a report published Wednesday, Compass Point analyst Kevin Barker initiated coverage on Flagstar Bancorp

with a Sell rating and $12.00 price target. In the report, Barker noted, “Flagstar is the largest Michigan-based savings bank and one of the largest mortgage banks in the U.S. The vast majority of the company's earnings are sensitive to industry-wide mortgage origination volumes and gain on sale margins. Although Flagstar has made significant progress in removing legacy liabilities while gain on sale spiked to record levels in 2012, we believe the company will have a difficult time maintaining earnings in the face of declining margins and slowing refi volumes. Meanwhile, the company still has a ways to go before it can successfully declare it has moved past its legacy credit issues. This would likely limit Flagstar's ability to grow capital levels enough to successfully convince regulators the company can payback TARP without raising equity before the preferred dividend increases to 9% in February 2014.” Flagstar Bancorp closed on Tuesday at $14.99.