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Wells Fargo (WFC) Q2 Mortgage Income to Fall, Buybacks Halt
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At Morgan Stanley U.S. Financials, Payments & CRE conference, Wells Fargo & Company’s (WFC - Free Report) chief financial officer Mike Santomassimo noted that the bank’s mortgage income could sequentially fall "close to 50%" in the second quarter. This is due to higher interest rates dampening refinancing activity and affecting home affordability in the purchase origination market.
He commented, "You're still seeing some activity in the purchase market, which is good, but affordability does start to become an issue as rates continue to increase."
Markedly, last week, the 30-year fixed-rate mortgage reached 5.23%, up from 2.96% a year earlier. The climb in mortgage rates has been affecting origination volumes. Hence, being the largest bank mortgage lender in the United States, the company is likely to continue seeing declines in its home lending portfolio and mortgage banking income. This might affect its fee income in the second quarter.
Beside, recent market volatility could affect other components of fee income. Specifically, the industry-wide decline in deal-making activity due to fewer companies going public and stock prices plunging as economic growth slows is affecting investment banking revenues. Wells Fargo too is not immune to these changes and might see a decline in investment banking revenues.
While trading revenues do not comprise a significant part of the company’s business, Wells Fargo expects trading revenues to be up "a little bit over last year.”
The company expects operating losses to increase in the second quarter. But it remains confident about its $51.1-billion expense outlook for 2022.
While WFC has released reserves in several recent quarters, management said that in second-quarter 2022, the bank would not release funds set aside to cover potential pandemic-related loan losses. This is probably due to the "uncertainty" in the U.S. economy.
On the same grounds, the company said that it is unlikely to repurchase stock in the second quarter. It also reassured that resolving ongoing risk and regulatory restrictions related to its scandal of employees opening unauthorized and consumer accounts to meet quotas was a top priority.
Given the near-term headwinds, revenue growth is likely to be challenging for Wells Fargo. For the second quarter, WFC’s revenues are projected at $17.8 billion, indicating a decline of 11.8% from the year-ago reported figure.
Over the past year, shares of this Zacks Rank #3 (Hold) company have lost 25.6% compared with the industry's decline of 24.6%.
The consensus estimate for S&T Bancorp’s current-year earnings has been revised 1.4% upward over the past 30 days. Over the past year, STBA’s share price has declined 19.2%.
Evercore’s current-year earnings estimates have been revised 2.1% upward over the past 60 days. EVR’s shares have lost 30.8% over the past year.
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Wells Fargo (WFC) Q2 Mortgage Income to Fall, Buybacks Halt
At Morgan Stanley U.S. Financials, Payments & CRE conference, Wells Fargo & Company’s (WFC - Free Report) chief financial officer Mike Santomassimo noted that the bank’s mortgage income could sequentially fall "close to 50%" in the second quarter. This is due to higher interest rates dampening refinancing activity and affecting home affordability in the purchase origination market.
He commented, "You're still seeing some activity in the purchase market, which is good, but affordability does start to become an issue as rates continue to increase."
Markedly, last week, the 30-year fixed-rate mortgage reached 5.23%, up from 2.96% a year earlier. The climb in mortgage rates has been affecting origination volumes. Hence, being the largest bank mortgage lender in the United States, the company is likely to continue seeing declines in its home lending portfolio and mortgage banking income. This might affect its fee income in the second quarter.
Beside, recent market volatility could affect other components of fee income. Specifically, the industry-wide decline in deal-making activity due to fewer companies going public and stock prices plunging as economic growth slows is affecting investment banking revenues. Wells Fargo too is not immune to these changes and might see a decline in investment banking revenues.
While trading revenues do not comprise a significant part of the company’s business, Wells Fargo expects trading revenues to be up "a little bit over last year.”
The company expects operating losses to increase in the second quarter. But it remains confident about its $51.1-billion expense outlook for 2022.
While WFC has released reserves in several recent quarters, management said that in second-quarter 2022, the bank would not release funds set aside to cover potential pandemic-related loan losses. This is probably due to the "uncertainty" in the U.S. economy.
On the same grounds, the company said that it is unlikely to repurchase stock in the second quarter. It also reassured that resolving ongoing risk and regulatory restrictions related to its scandal of employees opening unauthorized and consumer accounts to meet quotas was a top priority.
Given the near-term headwinds, revenue growth is likely to be challenging for Wells Fargo. For the second quarter, WFC’s revenues are projected at $17.8 billion, indicating a decline of 11.8% from the year-ago reported figure.
Over the past year, shares of this Zacks Rank #3 (Hold) company have lost 25.6% compared with the industry's decline of 24.6%.
Image Source: Zacks Investment Research
Stocks to Consider
A couple of better-ranked stocks from the finance space are S&T Bancorp, Inc. (STBA - Free Report) and Evercore Inc. (EVR - Free Report) . STBA currently sports a Zacks Rank of 1 (Strong Buy) and EVR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for S&T Bancorp’s current-year earnings has been revised 1.4% upward over the past 30 days. Over the past year, STBA’s share price has declined 19.2%.
Evercore’s current-year earnings estimates have been revised 2.1% upward over the past 60 days. EVR’s shares have lost 30.8% over the past year.