Wells Fargo (WFC) Q2 mortgage income will drop, redemptions will stop – June 15, 2022

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At the Morgan Stanley US Financials, Payments & CRE Conference, Wells Fargo and companyit is (WFC Free Report) Chief Financial Officer Mike Santomassimo noted that the bank’s mortgage revenue could fall sequentially by “nearly 50%” in the second quarter. This is due to higher interest rates dampening refinancing activity and affecting housing affordability in the origination market.

He commented: “You’re still seeing some activity in the buy market, which is good, but affordability is starting to become an issue as rates continue to rise.”

Notably, last week the 30-year fixed-rate mortgage rose to 5.23% from 2.96% a year earlier. Rising mortgage rates impacted origination volumes. Therefore, being the largest bank mortgage lender in the United States, the company should continue to see its mortgage portfolio and mortgage bank income decline. This could affect its commission income in the second quarter.

In addition, recent market volatility could affect other components of commission income. Specifically, the decline in industry-wide trading activity due to fewer companies going public and falling stock prices as economic growth slows is affecting bank earnings. of investment. Wells Fargo is also not immune to these changes and could see a decline in investment banking revenue.

Although trading revenue is not a large part of the company’s business, Wells Fargo expects trading revenue to increase “a little over last year.”

The company expects operating losses to increase in the second quarter. But it remains confident about its $51.1 billion spending outlook for 2022.

While WFC has released reserves in several recent quarters, management said in the second quarter of 2022 the bank would not release funds set aside to cover potential loan losses related to the pandemic. This is probably due to the “uncertainty” of the US economy.

For the same reasons, the company said it was unlikely to repurchase shares in the second quarter. He also reassured that addressing ongoing risks and regulatory restrictions related to his scandal of employees opening unauthorized accounts and consumers to meet quotas was a top priority.

Given the near-term headwinds, revenue growth will likely be difficult for Wells Fargo. For the second quarter, WFC’s revenue is projected at $17.8 billion, indicating an 11.8% decline from the figure reported a year ago.

Over the past year, shares of this company Zacks Rank No. 3 (Hold) have lost 25.6% compared to the industry’s decline of 24.6%.

Image source: Zacks Investment Research

Actions to Consider

A few higher-ranked stocks in the financial sector are S&T Bancorp, Inc. (STBA free report) and Evercore Inc. (RVE free report). STBA currently sports a Zacks Rank of 1 (Strong Buy) and EVR sports a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

S&T Bancorp’s consensus earnings estimate for the current year has been revised up 1.4% in the past 30 days. Over the past year, STBA’s share price has fallen by 19.2%.

Evercore’s earnings estimates for the current year have been revised up 2.1% in the past 60 days. Shares of EVR have lost 30.8% over the past year.

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