Inside the Wells Fargo Mortgage Conundrum
Hi, Aaron Weinman here. Let’s talk about Wells Fargo, and more specifically its mortgage business – long a profit center for the bank.
But before we get started, a little about old friend and Fed Chairman Jay Powell, who appeared before the Senate Banking Committee on Wednesday (and will appear before the House Financial Services Committee today). You can’t really talk about mortgages without making the connection to Powell’s quest to raise rates.
Interest rate hikes are one of the Fed’s favorite tools to fight inflation. But Powell said the rate hike won’t provide the quick relief we’ve hoped for, especially when it comes to food and gas prices. The Fed’s mission to cool the economy is also translating into more expensive home loans, a key factor in Wells’ decision to scale its mortgage business.
By the way, I stopped by CBS News last night to talk about Powell’s testimony – watch the clip here.
Now let’s go.
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1. There’s more pain ahead for Wells’ mortgage business as staff cuts loom and earnings weaken amid rising interest rates. Analysts pontificate on how the unit fits into CEO Charlie Scharf’s master plan.
Wells has long been a leader in mortgage lending in the United States. But, as Insider previously reported, Scharf signaled that the bank would reduce its exposure to home loans.
The San Francisco-headquartered bank wants to invest in other areas such as credit cards and investment banking in a bid to compete with peers such as JPMorgan Chase, Bank of America and Citi.
The mortgage cut, meanwhile, challenges Wells’ reputation as a Wall Street bank that appeals to “Main Street” because of its extensive relationships with American consumers.
Such changes raised questions about Wells’ future appearance. Will it just be a slimmed down version of his current self? Is this part of Scharf’s plan to steer the bank away from a fake account scandal exposed six years ago?
Insider’s Carter Johnson sat down with industry experts to deduce what these changes mean for Wells, its mortgage business and the staff who make up this long profitable part of the bank.
Of course, it’s not just Wells feeling the pinch of a cooling home loan market. JPMorgan Chase has also laid off thousands of its door-to-door lender employees, and many other rival bank employees are expected to be reassigned.
In other news:
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3. Goldman Sachs will create some 5,000 jobs at new digs in Dallas, Texas. The city council will provide more than $18 million in economic incentives to support the office, according to The Dallas Morning News.
4. Dovi Frances, founding partner of venture capital firm Group 11, wants the investment community to be more open. Frances, who has invested in fintechs like EquityBee and Papaya Global, shared her returns with Insider, which showed more than $1 billion in earnings on paper.
5. Property brokerage Compass has warned of further job cuts in addition to the 450 announced earlier this month. Read the full email Robert Reffkin, Compass CEO and former Goldman Sachs banker, sent staff over the layoffs.
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7. Sam Bankman-Fried loaned $250 million to crypto lender BlockFi. The crypto billionaire stepped in to shore up the company’s balance sheet just a week after it loaned brokerage Voyager Digital $485 million in cash and bitcoin.
8. Crypto exchange Binance.US, meanwhile, said it was eliminating fees for all customers on bitcoin spot trading. The exchange, which launched in 2019, is also looking to raise more money from investors, The Wall Street Journal reported. The fee reduction is bad news for rival Coinbase, which saw its shares tumble more than 9% on Wednesday.
9. This $65 million Nevada mansion overlooks Lake Tahoe and comes with a private cable car. Take a look inside the most expensive home currently for sale in the Silver State.
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