U.S. Bancorp (NYSE:USB) overtook banking giants Bank of America (NYSE:BAC) and Citigroup (NYSE:C) to become the third-largest mortgage originator in the U.S. for the first quarter of the year.  Data compiled by Inside Mortgage Finance details the performance of mortgage lending divisions of the country’s largest banks in Q1 2012 – a period over which mortgages worth $385 billion were originated. Wells Fargo (NYSE:WFC) continues to rule the roost with an unrivaled market share of 33.9% followed by JPMorgan Chase (NYSE:JPM) with a 10.6% market share. U.S. Bancorp’s share stood at 5.2% – indicating that the top three banks were responsible for nearly half of all mortgages given out over the period.
We maintain a $34 price estimate for U.S. Bancorp’s stock, about 8% higher than its current market price.
U.S. Bancorp reported a strong performance for the first quarter of 2011 recently, with its mortgage lending business playing a pivotal role in its improved profit figures. An improvement in conditions in the housing market over the period helped the bank grow its mortgage portfolio by 4.3% since the end of 2011. The fact that borrowing costs are at an all-time low has also done a lot to draw more customers seeking home loans. The bank now has almost $38 billion in outstanding mortgages.
U.S. Bancorp in particular benefited from the decision by Bank of America and Citigroup to cut down on their mortgage businesses following their colossal mortgage losses since 2008. We expect that U.S. Bancorp’s mortgage business will continue to capture market share as it ramps up its focus on the area while competitors such as Bank of America and Citi focus on their core competencies and move away from home loans. The chart above shows the impact that U.S. Bancorp’s residential mortgage loans outstanding has on its stock price.Notes:
- Wells Fargo Dominates Home Lending as BofA Retreats: Mortgages, Bloomberg, May 3 2012 [↩]