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What Offset Wells Fargo’s Commercial Expansion in 2Q17

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Jul. 18 2017, Updated 2:56 p.m. ET

Subdued offtake

In recent quarters, Wells Fargo (WFC) has seen lower credit offtake than its banking (XLF) peers have seen. The bank had total loans of $957 billion on June 30, 2017, compared with $958 billion on March 31, 2017. The decline has been mainly due WFC’s tighter underwriting guidelines in the auto loans category, which resulted in lower originations.

In Wells Fargo’s total loan book, commercial lending totaled $505.9 billion, and consumer lending totaled $451.5 billion. In 2Q17, Wells Fargo saw a decline of $1.1 billion in commercial lending and $5.6 billion in consumer lending.

Wells Fargo has high exposure to mortgage lending and has seen relatively slower growth in credit offtake than Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C).

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Industrial, real estate, auto loans

Wells Fargo’s Commercial loans increased on a YoY (year-over-year) basis due to originations in government and institutional banking, Wells Fargo Commercial Capital, middle market banking (partially offset by lower exposure in emerging markets), and commercial dealer services.

WFC’s Commercial real estate loans rose YoY due to funding under construction commitments. But the bank’s consumer loans saw a sharp decline on lower auto loans due to stringent underwriting rules and lower student loans, which were partially offset by first mortgage loans.

Wells Fargo commanded an average yield of ~4.4% in 2Q17, which represents a growth of ten basis points over 1Q17, primarily helped by higher rates.

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