Wells Fargo (WFC) shares edged lower Monday following a report from Bloomberg news that suggested the bank is preparing to significantly reduce its once-leading mortgage business.
Bloomberg said the shift, which is expected to include big changes in the way it deals with outside mortgage originators, is likely to lead to Wells Fargo focusing its home lending business to existing customers.
The bank said in a statement that it's "evaluating the size of our mortgage business to adapt to a dramatically smaller originations market" while "continuing to look across the company to prioritize and best position us to serve our customers broadly.”
Wells Fargo shares were marked 1.2% lower in early Monday trading to change hands at $45.42 each.
Wells Fargo said lending revenue declined 53% from last year over the three months ending in June, amid lower mortgage originations and compressed margins, with the bank indicating further declines over the current quarter amid a first half jump of around 250 basis points in U.S. mortgage rates.
"If you just go back and look at how big we were in the mortgage business, we were a hell of a lot bigger than we are today," CEO Charlie Scharf told investors on July 15. "We're not interested in being extraordinarily large in the mortgage business just for the sake of being in the mortgage business"
"We're in the home lending business because we think home lending is an important product for us to talk to our customers about," he added. "And that will ultimately dictate the appropriate size of it."
Wells Fargo said earnings for the three months ending in June came in at 74 cents per share, down 46.4% from the same period last year and well shy of the Street consensus forecast of 80 cents per share. Group revenues also missed forecasts, falling 16% to $17.028 billion as net interest income rose 16% to $10.2 billion.
The group also set aside $580 million to cover potential bad loans, a move echoed the caution expressed during the second quarter earnings release from JPMorgan (JPM). Wells Fargo had released around $1.26 billion in loan reserves over the same period last year, making this year's earnings comparison increasingly challenging.
