Wells Fargo Rules Mortgage Biz - Analyst Blog


Wells Fargo & Company ( WFC ) has achieved a milestone by recording the biggest market share in mortgage originations in the first quarter of 2012. The company has made this strategic expansion when some of its rivals are retreating from this market.

Notably, apart form achieving the top position, the company's market share also rose over three times than that of its closest competitor, JPMorgan Chase & Co. ( JPM ).

According to Bloomberg, which cited the Inside Mortgage Finance newsletter, in the first quarter Wells Fargo made a whopping 33.9% of the $385 billion of the mortgages originated. This represents an upside from the 30.1% that the company made in the prior quarter.

Compared to Wells Fargo, the shares of its rivals are meager. JPMorgan has just 10.6% of the market share. U.S. Bancorp ( USB ), which came fifth last time, climbed to the third position with a market share of 5.2%. Bank of America Corp. ( BAC ) occupied the fourth position with a 4.2% market share.

Wells Fargo had strategically curtailed mortgage lending during the boom period when a number of its rivals had augmented their market share by sacrificing their underwriting standards.

Countrywide, which was an aggressive lender that suffered huge losses with the bursting of the housing bubble, was ultimately acquired by Bank of America in 2008. This acquisition resulted in Bank of America incurring huge losses in the recent period and the company is scaling back its mortgage lending business. Citigroup Inc. ( C ), which was placed fourth last time, came to the fifth position with the company restricting its mortgage lending business.

This retreat by its rivals has opened up ample opportunities to gain market share, which is what Wells Fargo is doing. Last month, the company reported better-than-expected earnings aided by a growth in mortgage banking revenue.

Notably, Wells Fargo's mortgage banking revenue in the first quarter came in at $2.9 billion, up $506 million from the prior quarter. This was achieved on $129 billion of originations in the reported quarter, compared with $120 billion of originations in the prior period.  The unclosed pipeline as of March 31, 2012, was $79 billion, up from $72 billion as of December 31, 2011.

Besides Wells Fargo, U.S. Bancorp is also capitalizing on the market share growing opportunities in the mortgage lending business. The company is stepping up its resources to augment its business in this domain in the days ahead.

Such strategic expansion efforts are encouraging. Holding a substantial market share may subject Wells Fargo to increased regulatory scrutiny, but we believe a disciplined approach on part of the company will help it enjoy the leading position.

Currently, the shares of Wells Fargo have a Zacks #3 Rank, which translates into a short-term Hold rating. Additionally, considering the fundamentals we maintain our long-term Neutral recommendation on the stock.

BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BAC , C , JPM , USB , WFC



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