Job cuts in mortgage operations
On August 23, Wells Fargo (WFC) announced that it planned to terminate the jobs of 638 employees in its home mortgage division due to subdued activity in the domestic housing market. The company revealed that the recent move coincides with a slowdown in the US housing market, as rising interest rates are hurting the demand for mortgage refinancing. Also, rising interest rates reduce the affordability of consumer real estate loans.
Wells Fargo registered a decrease in mortgage loan originations in the first half of the year. During its most recent earnings release on July 13, the company noted a YoY (year-over-year) decline of 33.0% in its mortgage banking income for the second quarter and 28.0% for the first half of the year.
In an emailed statement, Wells Fargo spokesman Tom Goyda noted, “After carefully evaluating market conditions and consumer needs, we are reducing to better align with current volumes.”
This isn’t the first time that Wells Fargo has cut jobs in its home mortgage division. According to the Financial Times, the largest housing finance company in the United States has laid off 126 employees in the last few weeks in its auto lending and payments and virtual solutions teams. In June, Wells Fargo announced that it would lay off 293 mortgage operation employees. The company’s total employee headcount totaled 264,500 on June 30.
Department of Justice findings
On August 1, the US Department of Justice (or DoJ) determined that Wells Fargo deliberately misrepresented its loan quality and imposed a $2.09 billion fine. In April, the company paid $1.0 billion in fines related to auto insurance and mortgage lending abuses. In this case, the DoJ determined that the bank had fraudulently enrolled thousands of customers in various products and services without their knowledge or consent.
All these litigation issues are hurting the company’s profitability. Wells Fargo’s second-quarter EPS of $0.98 missed the Wall Street estimate of $1.12, and its EPS fell 9.0% on a YoY basis.
Among its competitors, JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C) had reported second-quarter YoY EPS growth of ~34.0%, 39.0%, and 27.0%, respectively. The Invesco KBW Bank ETF (KBWB) holds ~8.4% of its total portfolio in Wells Fargo stock.