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Wells Fargo (WFC) Reduces Exposure to Auto Loan Portfolio

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Wells Fargo & Company (WFC - Free Report) is cutting back its auto lending business. The company is taking this step as a prolonged low interest rate environment has taken toll on the U.S. auto market, per an article by Reuters.

The company’s quarterly originations of auto loans have fallen about 30% in the nine-month period ending Mar 2017. Further, subprime loans in the auto portfolio declined 3% year over year in first-quarter 2017.

This move is going to impact Wells Fargo’s headcount. Per the article, hundreds of jobs can be cut as the bank has begun to consolidate the collection operation.    

In order to improve performance, Wells Fargo had previously been lending to people with weak credit background. However, per data reported by Cox Automotive, the default rates related to auto industry started to outpace the others in the second half of 2015. As a result, lenders began backing out.

Wells Fargo has been cutting off on auto loans to protect itself from credit risk. Due to this, its ranking among the top U.S. auto lenders has dropped to seventh from second, per Experian Automotive.

Following the fake accounts scandal, which deeply impacted the company’s performance, several reforms and tightening of control measures were put forth by top management. This was in contrast to Wells Fargo’s approach of operational independence.

Further, despite the company’s several efforts to control costs, expenses have been increasing over the last few years. Also, Wells Fargo’s involvement in a number of legal issues will curb bottom-line growth.  

Wells Fargo’s shares have gained 14% in the last one year, underperforming the 41.9% rally for Zacks categorized Banks - Major Regional industry.

Currently, the bank carries a Zacks Rank #4 (Sell).

Stocks worth considering in the same space include Comerica Incorpotayed (CMA - Free Report) , Northern Trust Corporation (NTRS - Free Report) and State Street Corporation (STT - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Comerica’s Zacks Consensus Estimate witnessed an upward revision of nearly 1% for current-year earnings, over the past 60 days. Also, its share price has gained 76.1% over the last one year.

Northern Trust's Zacks Consensus Estimates for the current-year earnings moved upward by 1%, over the past 60 days. Its share price has increased 48.6%, over the last one year.

State Street’s current-year earnings estimates were revised slightly upward, over the past 60 days. Over the last one year, its share price has surged 64.6%.  

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