Thread regarding Wells Fargo & Co. layoffs

This is serious. Worst that has happened to Wells in some time. JPM is supposed to be the shining star and they got hit. Brace yourselves, this WILL get rocky for virtually all of us in some way or another.

Auto Finance is next with supply chain and inventory issues. Manufacturing is barely at 60% what it was pre-pandemic for new vehicles. Don’t get me started on finding replacement parts and lending rates and prices for new vehicles are steadily increasing. It’s a perfect storm. 🤦🏻‍♂️

At some point the covid relief will be lifted and any customers that have been shielded from foreclosure will no longer have that protection. The increase of FCs is going to be an issue when we try to process them and the mortgage side has been gutted. Just like everyone has pointed out with high attrition. More operational he-l to come!

There’s very good reasons to get out of mortgage lending right now. 1) the market has collapsed for this type business and may not come back for several years. 2) holding onto so much debt is unwise. Remember, 2007/2008/2009? When the market collapsed a flood of foreclosures came next. These loans are sold to the secondary market. Secondary market guidelines tightened after 2008, meaning if the lender/bank has broken or cannot meet secondary market contract guidelines, the bank may have to absorb these losses. Of course, they will fight it through their repurchase claims department. But, too many losses would be catastrophic and the bank could fail. 3) Being the largest target is unwise. The federal government will sue and sue and sue for faulty underwritten mortgages. In 2007, BOFA recognized this and decided to pull back on their mortgage lending enterprise. They no longer wanted to be the “largest” mortgage lender. They were repeatedly sued after being forced by the government to buy defunct Countrywide mortgage. I could go on with additional reasons but you get the idea of where this is headed. Best to all.

CS decided to trim the mortgage footprint because mortgages at WF dropped 38% last year for WF. Now we are going into a recession with high interest rates. He's not managing anything other than the communication. WF's trimming of the mortgage business is completely out of his hands.

It's not just Wells Fargo. The mortgage industry as a whole is taking a beaten.

That’s a nice plan,, but where exactly is the investment in the other businesses? All I see is stock buybacks

Wells Fargo has long been one of the largest mortgage lenders in the US.
But CEO Charlie Scharf has recently signaled the bank will trim its mortgage footprint.
Wells is reconsidering its mortgage business as it invests in growth areas, like investment banking and credit cards.

Wells Fargo has long billed itself as Main Street's bank. Founded in 1852 — and "re-established in 2018" — the San Francisco-based financial firm often touts its depth of relationships with a broad swathe of American consumers.
But recent comments from CEO Charlie Scharf have called into question the premise that Wells Fargo is, or should be, the bank for everyone, everywhere — at least when it comes to mortgages, long a major profit center for the company.
At an industry conference this June, Scharf said that Wells Fargo was reconsidering the size of its footprint in home lending. Mortgages "won't be as large as we were historically," Scharf said, adding that the days when home lending served as a "standalone profit generator" within the bank were "long gone."
The comments come amid a larger transformation of Wells by Scharf, including among vast swathes of its executive leadership team. Other changes include the bank's effort to talk up big bets on historically smaller revenue drivers like credit cards and investment banking in a push to compete with industry giants like JPMorgan Chase, Bank of America, and Citi. At the same time, it's paring back traditional strengths for Wells, like mortgages, that have also come with regulatory scrutiny and have now been buffeted by a downturn in the mortgage markets as interest rates rise.
All of these changes have raised questions about what the bank will look like down the road and how seriously it will cut back its mortgage business. Insider spoke to three industry experts to help explain this transformation, including what it will mean for Wells' mortgage employees. They all say they expect more home lending cuts to come as the bank's downsizing of its mortgage business is being driven by more than the level of interest rates or broader consumer lending trends.
"As Wells really concentrates on who it's going to be, I suspect a smaller footprint is simply the inevitable outcome of that," R. Scott Siefers, senior research analyst at Piper Sandler, told Insider.
The carnage so far
Wells doesn't break out staffing numbers for its mortgage business specifically, but even before rates started rising in 2022, the bank was cutting back in
consumer banking
and home lending. Between 2020, Scharf's first full year helming Wells, and 2021, consumer banking and lending headcount at the bank fell 10%, according to its latest annual report.
Then the
Federal Reserve
began raising interest rates in an effort to slow the economy and combat soaring inflation.
Like other major mortgage players this year, Wells Fargo has been hit hard by a downturn in home lending as interest rates rise at their fastest pace in decades. This April, the bank reported that mortgage revenues in the first quarter of 2022 had fallen by 33% compared to the year prior.
Just weeks later, Insider reported that Wells was laying off a wide array of teams in home lending operations — including underwriters and loan processors — across at least five major markets like Des Moines, Phoenix and San Antonio.
Wells Fargo's head of home lending, Kristy Fercho, later said at an employee town hall that the layoffs may have been worse had the bank not worked to place employees — including 300 underwriters — in other teams, Insider reported.
This year, many
mortgage lenders
have signaled their desire to cut costs by reducing headcount and expenses. But Wells, whose own expenses have been particularly scrutinized against the backdrop of Scharf's efforts to transform the bank, has been more vocal than others, Gerard Cassidy, head of US bank equity strategy at RBC, told Insider.
"Wells has been at the forefront of telling investors that they have to — and they're planning to — align their expenses more tightly with the lower amounts of revenue that are being generated from the mortgage business," said Cassidy.
What's next
Wells Fargo declined to specify the scope of the mortgage job cuts this spring. But industry analysts, and even a top Wells Fargo exec, have said more downsizing is likely yet to come this year as rates continue to rise.
This June, Wells Fargo CFO Mike Santomassimo predicted at another industry conference that mortgage income at Wells this quarter could fall 50% from the first quarter.
"I think all big mortgage providers or all mortgage providers are still in this process of rightsizing capacity for what everyone expects to be a smaller market," Santomassimo said, according to a transcript of his remarks from data provider Sentieo.
Apart from market conditions, Wells Fargo is also still feeling the reputational effects of a fake account scandal first unveiled six years ago — one that led Scharf to the top of Wells in the first place, where he has orchestrated a sweeping overhaul of the bank's top ranks.
Speaking in June, Scharf said the criticism the bank has received over allegations of unfair lending practices for conforming home loans could cause the bank to trim its mortgage business further. "There are some things like that which do put you in a difficult position, which we do need to be very thoughtful about from a reputation perspective," Scharf said.
Wells Fargo is still operating "under a microscope" relative to peers and
non-bank
lenders, RBC's Cassidy told Insider. It's a spotlight made all the more pressing as Wells faces stiff competition from large
nonbank
mortgage lenders like Rocket and loanDepot, a fact also highlighted by Scharf this June.
"The banks have an extra level of scrutiny that the mortgage originators do not, which is the bank regulators," Cassidy said. "Therefore the mortgage operations inside a bank have to go through extra levels of analysis and risk controls due to the banking regulators and the
banking regulations

• "

And Wells Fargo's own, transforming "risk profile" under Scharf has also been cause to re-assess the bank's mortgage business, said Piper Sandler's Siefers. "That's probably a good thing for them, to take a second look and decide exactly who they want to be in the mortgage lending environment," he said.
Long-term transformation
The sheer scale of the mortgage market will limit Wells's desire to step back "super meaningfully" from home lending, according to Siefers.
But even when interest rates decline again, Wells Fargo might choose to continue to focus on new investment areas as the bank sets its sights on growing historically smaller revenue drivers.
"I just don't think they're trying to be all things to all people at this point," Siefers added.
According to Ken Leon, director of equity research at CFRA, Wells is looking to lean on a number of businesses that could be growth engines for the bank as it charts a new strategy under Scharf — from credit cards to capital markets to wealth management. Home lending isn't among them.
"If you're looking for this to be a bull case scenario or a turnaround coming from the volumes or the mortgage markets where Wells Fargo was a leader, the answer is no," Leon said.
At the same conference where Scharf discussed Wells Fargo's mortgage footprint, he also said the chance to provide investment banking services to existing customers is a "$1 billion opportunity."
Wells is unlikely to make any major moves in investment banking for the short-term, analysts said. For one, the asset cap and consent orders imposed by federal regulators in the wake of the accounts scandal are likely to inhibit investments or acquisitions. Another inhibitor is this year's market slowdown, which has hit all investment banks and slowed dealmaking to a crawl.
"Once the asset cap is lifted and cease assist orders are lifted, that gives [Scharf] more flexibility and optionality. It wouldn't be surprising if he pursues a more aggressive growth strategy in the capital markets businesses, as he competes against the larger banks like Bank America and JPMorgan," RBC's Cassidy said.