Why Wells Fargo Is Seeing Marginal Growth in Lending



Lower traction among consumers

Wells Fargo (WFC) saw its total loans increase a marginal 1% on a YoY (year-over-year) basis to $952 billion, largely due to a decline in consumer loans. The bank has a major exposure to mortgage banking, which has seen less business in recent quarters on higher interest rates. Commercial bankers (IYF), including JPMorgan Chase (JPM) and Bank of America (BAC), have seen strong growth in lending, whereas Citigroup (C) has registered marginal positive growth in recent quarters.

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Mortgages, underwriting discipline

Wells Fargo had total loans of $952 billion as of September 30, 2017, compared to $957 billion on June 30, 2017. Sequentially, consumer loans increased marginally to $451.7 billion from $451.5 billion due to growth in mortgage loans and credit card loans, partially offset by lower automobile loans and the legacy junior lien mortgage portfolio.

Commercial loans fell $5.8 billion to $500.2 billion, reflecting lower originations, strict underwriting guidelines, and repayments from existing offerings.

Trends: Commercial and consumer

Wells Fargo’s commercial loans fell $5.7 billion from the previous quarter, mainly due to declines in asset-backed finance and mortgage finance, government and institutional banking, and commercial dealer services. Those were partially offset by subscription finance, lending to financial institutions, and real estate credit to non-depository financial institutions.

Commercial real estate loans fell $2.6 billion sequentially, largely due to lower construction, originations, strict credit discipline, high liquidity pushing for lower margins, and advance payoffs of existing loans.

Consumer loans, credit card, and consumer real estate 1–4 family loans increased on a sequential basis. However, automobile lending declined due to strict underwriting guidelines.

Wells Fargo is targeting lending across the subsectors under new, tighter underwriting guidelines to improve provisions and positioning among investors after the bank’s recent controversies.


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