By Charles Langston
Who would have believed it? Wells Fargo (WFC) managed to become the number one company for U.S. mortgages, claiming 33.9% of total mortgages made in the first quarter of 2012, with main rivals Bank of America (BAC) and JPMorgan Chase (JPM) continuing to fall back in the home lending industry. As reported by Inside Mortgage Finance, Wells Fargo also more than tripled the 10.6% market share that its other main rival, JPMorgan, had. This also resulted in U.S. Bancorp (USB), jumping from fifth place last year to third in this year's first quarter.
These rankings indicate which financial company can hold its own during a time of economic uncertainty, shrinking loan volume and increased regulatory scrutiny in the industry in general. Both Wells Fargo and US Bancorp saw an increase in total number of loans in the first quarter, while JP Morgan, Bank of America and Citigroup (C) suffered losses compared with the fourth-quarter revenue.
After significant losses and lawsuits through its 2008 acquisition of Countrywide Financial, Bank of America altogether stopped buying mortgages last year and while it managed to maintain its #4 position in rankings, its total volume fell to $16 billion from last year's fourth quarter. That's a whopping quarter drop for the bank that was at one point the largest U.S. mortgage lender in 2008, following the Countrywide acquisition. Even Ally Financial, which was originally the sixth-largest loan provider in the fourth quarter last year was down to 10th in the first quarter of 2012.
To me, Wells Fargo looks like it is going to have a few good years ahead of it still, after coming out of a financial crisis relatively unscathed and with nine consecutive quarters of business growth, the company has proven that it is truly made of steel. And if you don't want to take my word for it, just look at Warren Buffett; not only is Wells Fargo still in his top five positions, but he also boosted his stake by 3% in the first quarter.
The company reported a $4.2 billion net income, with a $129 billion worth of mortgage loans (an 8% year-to-year increase). Mortgage revenue was unsurprisingly its top earner, with over $2.9 billion from mortgages (a 21% year-to-year increase).
During a time of global losses where banks are concerned, Wells Fargo has not been shy to expand, with six transactions and acquisitions to its name since 2011. Most popular of which were the purchases of BNP Paribas North America Energy Lending, Burdale Financial Holdings Limited purchased from Bank of Ireland (IRE), and EverKey Global Partners. All of these acquisitions were completed in 2012, some as recent as last month and in April. Moreover, the company is also in the middle of a new takeover and has agreed to purchase, brokerage services and technology provider, Merlin Securities LLC, based in San Francisco, and New York. The sale will be completed by the third quarter, increasing Wells Fargo's customer reach and asset management sector.
Wells Fargo has made it clear that it is looking to delve deeper into the international market by supplementing its asset management division, and analysts are looking forward to seeing the affects that will have on the value of the company's stock. In fact, Wells Fargo released plans that it hopes to double its asset management business in the next seven years-a pretty big goal and one that the company has immediately took action toward achieving.
With first-quarter earnings that exceeded expectations (75 cents per share, 2 cents above analyst estimates and a figure that is expected to reach 81 cents by the end of the second quarter, representing a 16% increase year-by-year), the company's year-to-year more than impressed analysts and investors alike. By the end of 2012, analysts expect the company to report earnings of $23.27 per share, which is also a 16% increase from last year's figure. I definitely think Wells Fargo has a lot to offer long-term investors, with a diverse geographic and business combination, the company offers investors everything it needs to maintain business growth and stay on top of its industry.
Its constant hunger for bigger acquisitions will help expand the business and increase profitability. But this is not new for the financial giant, with a history in large acquisitions, its largest being the takeover of Wachovia in 2008, which was more than a success despite a couple of setbacks.
News that the company's Securities division, in partnership with Royal Bank of Scotland (RBS), plans to sell over $1 billion commercial mortgage-backed securities next week has me sitting on the edge of my seat now. This could only mean good things for Wells Fargo. Markets are jumping, and Wells Fargo is on at the front line, ready to take advantage of this turn in market. More than $865 million of the loan will be publicly offered, with the rest sold privately, on a 144A market.
It is hard not to admire what Wells Fargo has accomplished following a sharp downturn in business over the last few years, which presented a great opportunity for it to get back on track, while other banks and financial institutions were struggling with lawsuits and a shrinking economy. With a $7.5 million settlement in place, and a $425 million five-year mortgage lending goal for the city and county of Memphis ($125 million of that amount specifically for low and moderate income borrowers), Wells Fargo is ready to take the bull by its horns and ride out this upturn in business for every dollar that it's worth for the next couple of years at least, ensuring that the company remains profitable and investors stay on board with the financial giant.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.