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Wells Fargo to Re-Enter Private RMBS Market After a Decade

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Marking a comeback in the private mortgages market, Wells Fargo & Company (WFC - Free Report) is working on a $441 million mortgage bond without government guarantee along with an AAA rating. The bond’s sale is likely to be finalized in the coming week, per a Bloomberg article.

This San Francisco-based major bank will be offering such a bond for the first time since the financial crisis. Another Wall Street biggie, JPMorgan & Chase (JPM - Free Report) is the only other bank to have reentered the private residential mortgage-backed securities (“RMBS”) market.

Before the crisis, Wells Fargo was one of the top RMBS lenders, with more than $1 trillion worth of mortgages sold in 2005 and 2006 each. In 2008, several risky subprime mortgages securities went down leading to investors losing interest in such securities.

In August 2018, WellsFargo agreed to pay a penalty of about $2 billion to the U.S. Department of Justice for allegedly misrepresenting the securities it had offered in the run-up to the housing crisis.

Per the article, private RMBS market has been gaining strength and reached a post-crisis high of $75 billion in 2018 so far. Also, there are no indications of slowdown in demand for such securities..

While Wells Fargo is undertaking efforts to overcome the previous shortcomings and boost its performance, it faces a legal investigation. 

At a hearing held on Tuesday, Joseph Otting, chief of the Office of the Comptroller of the Currency told senators “We are not comfortable where we are with them.” He said that the bank is still measuring the financial harm caused to the 600,000 drivers who were improperly pushed into buying auto insurance.

Also, Wells Fargo’s CEO, Tim Sloan and chairwoman, Betsy Duke are likely to face the Congress sometime soon to testify about the bank’s wrongdoing over the past year.

Wells Fargo’s shares have lost 4.2% over the past three months against 3.8% rise recorded by the industry it belongs to.

The stock currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

First Financial Bankshares (FFIN - Free Report) has witnessed stable estimates for current-year earnings in the past 60 days. Over the past six months, the company’s share price has increased 28.7%. It currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First Mid-Illinois Bancshares’ (FMBH - Free Report) 2018 earnings estimates have been revised slightly upward in the past 60 days. Additionally, the stock has jumped 9% in six months’ time. It currently carries a Zacks Rank #2.

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