Wells Fargo Remains King Of The Mortgage Market, $35 Fair Value

by Trefis Team
Wells Fargo & Co.
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Wells Fargo (NYSE:WFC) continues its dominance in the mortgage industry with the bank grabbing the largest share in the mortgage origination market ever recorded last quarter. [1] The largest bank in terms of market capitalization originated home loans worth $130 billion over the year’s first quarter – an astonishing 33.9% of the total $385 billion of mortgage loans handed out by all banks for the period. JPMorgan Chase (NYSE:JPM) came in a distant second with a 10.6% market share, followed by U.S. Bancorp’s (NYSE:USB) and Bank of America’s (NYSE:BAC) 5.2% and 4.2% share respectively.

We maintain a $35 price estimate for Wells Fargo’s stock, which is about 15% above the current market price.

See our complete analysis of Wells Fargo here

Our analysis of  Wells Fargo shows that its mortgage business contributes to nearly a quarter of its total value – something that goes a long way in explaining the importance of this business for the bank.

The bank has consistently grown its mortgage business since the economic recession of 2008, a strategy clearly opposed to that undertaken by the other financial giants Bank of America and Citigroup who got their fingers badly burnt when huge chunks of their mortgage portfolios turned worthless. To this day, these banks face a number of mortgage-related lawsuits targeting portfolios worth billions of dollars.

The reduced focus on this business by competitors worked in favor of Wells Fargo, which had already received a boost during the crisis from the acquisition of Wachovia. Since then, the bank has firmly dug its heels in the country’s mortgage market – becoming the largest player for originating a well as servicing mortgages. The bank originated $357 billion worth of mortgages last year, and we expect it to grow the business to be able to give out well over $500 billion in mortgages by the end of 5 years.

The bank serviced mortgages worth $1.9 trillion last year – a figure we believe will continue to grow at 5% annually over the years to come.

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  1. Wells Fargo Dominates Home Lending as BofA Retreats: Mortgages, Bloomberg, May 3 2012 []
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