Why Wells Fargo leads in loans
The bank has always focused on its bread and butter revenue-earning stream: loans. Over the years, Wells Fargo slowly realized its goal of achieving a strong market share in lending.
Dec. 4 2020, Updated 10:52 a.m. ET
The importance of retail mortgages
Banks offer various types of loans. Those loans can be segregated into two broad categories—consumer, or retail loans, and commercial, or industrial loans. Of the consumer loans available today, retail mortgages are perhaps big enough and important enough to be considered separately.
Wells Fargo & Co (or Wells Fargo) (WFC), by virtue of its legacy, was never very strong in investment banking. Instead, the bank always focused on its bread and butter revenue-earning stream: loans. Over the years, Wells Fargo slowly realized its goal of achieving a strong market share in lending, although it took a hit during the sub-prime crisis.
Leveraging the lending crisis
After the crisis, peers Bank of America Corporation (BAC) and JP Morgan Chase & Co (JPM) became wary of lending. This was most evident in mortgage loans. Wells Fargo seized on this opportunity to grow its mortgage loan portfolio at a faster rate. By the end of financial year 2013, Wells Fargo serviced one in every three mortgages in the U.S.
Wells Fargo is the number-one mortgage originator. It issues the most new or fresh mortgage loans. It also has the largest mortgage-services portfolio in the U.S. The bank has a sales force of nearly 7,500 specialized home-mortgage consultants. In this respect, Wells Fargo is way ahead of its competitors, including Citibank, of Citigroup Inc (C), and other smaller banks in the mortgage business, such as those in the Financial Select Sector SPDR ETF (XLF).
Meanwhile, real estate is largely dependent on the economic cycle. So the bank’s strategy exposes it to the vagaries of the economy. How does Wells Fargo fare in other loan categories? Can it—should it—diversify its loan portfolio?
