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August 21, 2013 10:21 pm
Wells Fargo is cutting thousands of jobs in its mortgage business as the biggest home lender in the US prepares for a further drop in demand for new mortgages, writes Tracy Alloway.
The San-Francisco-based bank, also the largest in the US by market value, plans to trim 2,300 positions in its mortgage production unit, a company spokesman confirmed on Wednesday. The eliminations are the third, and biggest, wave of job cuts in the mortgage business to be announced by the bank so far this year.
They are part of a renewed push by John Stumpf, chief executive, to cut Wells’ overall costs to help offset lower mortgage lending and falling profit margins.
Higher interest rates in the US are expected to spur the end of a mortgage refinancing boom that has helped boost banks’ collective income in recent years. Rates began rising after the Federal Reserve suggested in May that it may start to scale back its unprecedented bond-buying programme later this year.
Wells Fargo declined to give estimates of the potential impact of a lending slowdown when it reported its second-quarter results last month. Jamie Dimon, chief executive of rival JPMorgan Chase, has publicly warned of a “dramatic reduction” in the industry’s future mortgage profits as higher rates begin to dampen consumer demand.
Since early May, mortgage rates have risen more than a percentage point for standard 30-year loans. The average rate for a 30-year mortgage rose 12 basis points last week to 4.68 per cent, the Mortgage Bankers Association said this week.
The effect of the jump in mortgage rates was already visible in Wells’ most recent results. Refinancings accounted for 56 per cent of new loans at the bank in the second quarter, down from 69 per cent in the first three months of 2013.
The job cuts announced on Wednesday will include lending staff in Alabama, North Carolina and Iowa. They follow at least three previous rounds of lay-offs that took place earlier this year and saw the bank trim hundreds of employees each time.
Banking analysts have long suspected that Wells Fargo would be the hardest hit in a mortgage lending slowdown. Home loans are by far the bank’s biggest business, though Wells has in recent months been trying to build up its capital markets and investment banking units as a way of diversifying its revenues.
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