Wells Fargo Reports Declining Mortgage Loans, Increase in New Accounts

-13.81%
Downside
57.96
Market
49.96
Trefis
WFC: Wells Fargo logo
WFC
Wells Fargo

In its recently released Q1’11 earnings, Wells Fargo (NYSE:WFC) reported a jump of 48% in its net income over the same period last year despite a decrease in its revenues that fell to $20.3 billion from $21.5 billion in Q1’10. Wells Fargo is the second largest bank in the U.S. by market capitalization and competes with other banks like Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), and Citigroup (NYSE:C) among others. We have a $33.19 Trefis price estimate for Wells Fargo, with home mortgages and deposits contributing  28% and 8% to the firm value. Our price is around 16% ahead of the current market price.

Wells Fargo reported a decline in new mortgage loans origination which fell sharply to $84 billion from $128 billion the previous quarter as interest rates rose. On the other hand, the firm’s average deposits increased to $841 billion in Q1’11, up from $805 in the same period last years. The increase in deposits was driven primarily by new account openings as consumer checking accounts grew 7.4% from Q1’10.

An increase in customer accounts resulted in a increase in Wells Fargo’s cross-sell, which is the number of banking products sold to each banking customer. Wells Fargo’s retail banking household cross sell at 5.79 is well below U.S. banking industry average of 16 and the firm targets a cross-sell of 8 utilizing merger synergies and extended customer base of Wachovia. Since Wells Fargo’s top line historically has grown in tandem with its cross-sell, we believe this development will positively impact the firm.

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See our analysis for Wells Fargo.