Wells Fargo (NYSE:WFC) is reportedly hard at work weeding out the redundancies in its mortgage lending unit, with the country’s largest bank in terms of market capitalization looking to do away with as many as 2,300 of these jobs across the country.  This is the fourth round of job cuts Wells Fargo’s mortgage operations will undergo within three months with the banking giant already slashing more than 1,400 jobs between June and early this month. 
Wells Fargo’s decision to slash the employee strength for its mortgage operations comes in the wake of slowing growth in the mortgage origination industry as the refinancing wave that produced a boom in the industry for a good part of the last two years has died out. Rising mortgage rates are also putting additional pressure on the demand for fresh mortgages. The combined effect of these two factors has already shown through in the bank’s performance figures over the last two quarters, with mortgage origination figures remaining well below those seen early last year. While Wells Fargo retains its standing as the country’s largest mortgage originator, the slow outlook for the mortgage industry at least for the near future mandates a reduction in total costs for the unit to ensure profitability. It must be mentioned here that peers JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) are also trimming hundreds of jobs across their mortgage operations. 
We maintain a $41 price estimate for Wells Fargo’s stock, which is slightly below the current market price.
- Wells Fargo’s Q3 Results Indicative Of Rough Weather Ahead, But Shares Are Extremely Undervalued
- Wells Fargo Earnings Preview: Immediate Impact of Sales Scandal Will Make Q3 A Rare Bad Quarter
- How Have Loan Charge-Off Rates For The Largest U.S. Banks Changed In The Last Five Quarters?
- What Were Total Loan Charge-off Rates For The Largest U.S. Banks In Q2 2016?
- How Much In Outstanding Mortgage Loans Did The Largest U.S. Banks Service As Of Q2?
- How Have Third-Party Mortgage Servicing Portfolios For The Largest U.S. Banks Changed In The Last 5 Quarters?
Wells Fargo employs more people than any other bank in the country with the bank reporting 274,300 full-time employees on its payroll at the end of Q2 2013 as a part of its SEC filing for the quarter. The number of mortgage loan officers included in this figure is roughly 11,400 – or roughly 4.2% of Wells Fargo’s workforce.  Now while the proposed reduction of 2,300 jobs is less than 1% of the bank’s total employee strength, the fact that Wells Fargo is targeting employees working on originating mortgages means the latest round of job cuts will shrink the number of mortgage loan officers by about 20%.
To arrive at a figure for the total reduction in expenses that Wells Fargo expects from the several rounds of layoffs it has announced, we start with the fact that the total mortgage jobs the bank has eliminated/aims to eliminate totals about 3,700. That’s 1.35% of its total workforce. Of the $50.4 billion in total non-interest expenses that Wells Fargo reported for the full year 2012, $28.8 billion was for employee compensation and related benefits – a good 57% of the expenses.
Using this figure of $28.8 billion, the 1.35% reduction in employee strength works out to a reduction in total compensation expense of roughly $400 million. So this is roughly how much Wells Fargo will save each year from the series of job cuts it has announced till now. You can understand how a reduction in non-interest expenses affects Wells Fargo’s share price by making changes to the chart above.Notes: