Credit card revenue exceeds mortgages at Wells Fargo in second quarter

Rising interest rates and a shrinking branch network are reducing Wells Fargo’s mortgage business, and bank executives say they’re okay with that.

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With rising interest rates and a shrinking branch network curtailing its mortgage business, Wells Fargo’s credit card business generated more revenue than home lending in the second quarter – and banks say they are okay with that.

Wells Fargo generated $3.12 billion in net profit in the second quarter, down 14% from the first quarter and 48% from a year ago, the San Francisco-based bank reported Friday. Revenue fell to $17.03 billion, down 3.2% quarter over quarter and 16% from a year ago.

Wells Fargo Mortgage Originations by Channel

Wells Fargo mortgage originations by channel in billions of dollars Source: Wells Fargo investor presentations

Wells Fargo issued $34.1 billion in mortgages in the first three months of the year, down 10% from the first quarter and 36% from a year ago.

Originations at Wells Fargo retail branches fell even more sharply, falling 19% quarter-over-quarter and 47% year-over-year to $19.6 billion.

As of June 30, Wells Fargo operated 4,660 retail banking branches, 45 fewer than March 31 and 218 fewer than the same period a year ago.

The bank also laid off employees, with the workforce down by 2,904 in the second quarter and 15,522 in the past 12 months to 243,674.

Charles Schaff

Asked about the bank’s mortgage strategy during a call with investment analysts, Wells Fargo CEO Charlie Scharf conceded: “If you go back and look at how far we were in the mortgage industry, we were much bigger than we are today.

Under Kristy Fercho, who took over as Wells Fargo Home Lending helm in 2020, Scharf said Wells Fargo has “reassessed what makes sense to do [in mortgage lending]how big we want to be both in the context of what our focus should be… our primary focus should be service and serving our own customer base.

As mortgages slumped at branches, Wells Fargo ramped up purchases of loans issued by correspondent lenders, which rose 5% from the first quarter to $14.5 billion. But that was down 11% from a year ago, when the bank acquired $16.3 billion in mortgages through its correspondent channel.

“We’re not interested in being extraordinarily big in the mortgage business, just for the sake of being in the mortgage business,” Scharf said. “We are in the home loan business because we believe home loan is an important product that we need to talk to our customers about. And this will ultimately determine the appropriate size of it.

Wells Fargo announced it would cut spending at its home lending division when it released first-quarter results in April. While it has yet to release the exact number of jobs cut from the company’s home lending division, several mortgage lenders and real estate companies have cut staff in recent weeks as Federal Reserve efforts to fight inflation by raising interest rates are raising concerns about lower home sales and a potential recession.

Investors seem comfortable with the bank’s strategy, with Wells Fargo stock up more than 6% after Friday’s earnings release and more than 12% since hitting a 52-week low of $36.54 on June 16.

Wells Fargo retail banking and lending revenue

Revenue, in billions of dollars, generated Wells Fargo’s consumer banking and lending segment during the second quarter of 2022. Source: Wells Fargo investor presentation

Mortgages represent a dwindling slice of the revenue pie within Wells Fargo’s Personal Banking and Lending segment, which includes four lines of business: Personal and Small Business Banking, Home Lending, credit cards, car loans and personal loans.

The $979 million in revenue generated from home loans in the second quarter represented 11.4% of the $8.507 billion in revenue generated by Wells Fargo’s personal banking and lending segment. That’s down 17.4 percent over the first quarter.

The bank attributed the 53% year-over-year drop in home loan revenue primarily to lower originations and sales margin gains and lower revenue from the resecuritization of loans purchased from mortgages. securitization pools. These decreases were partially offset by higher mortgage servicing revenue.

Credit cards overtook mortgages as the second largest revenue stream in the personal banking and lending segment, generating $1.3 billion in revenue or 15.3% of the pie.

Scharf noted that Wells Fargo this week launched its fourth new credit card offering in the past year, Wells Fargo Autograph, “reflecting our momentum in growing our consumer credit card business, with new accounts by more than 60% compared to a year ago We are focused on providing competitive offers and our new rewards card offers three times the points in key spending categories including dining, travel and gas stations. This is the first of several rewards-based cards we plan to introduce.”

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