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Wells Fargo: Lower expenses and reserve releases to offset declining mortgage business

  • Mortgage revenue - both from gain on sale margin and originations - is expected to continue to decline in Q3, says Wells Fargo (WFC +0.1%), presenting at the Barclays Financial Services Conference (slides). Gain on sale margins rose as high as 2.56% in late 2012 and early this year, but declined to 2.21% in Q2.
  • Wells has been busy cutting expenses in its mortgage operation - employment ramped up by 10K to about 18K in the two years ending in Q1, but declined in Q2. Nearly another 3K cuts have been announced thus far in Q3.
  • Also offsetting declining mortgage income in Q3 will be better credit performance - "absent significant deterioration in the economic environment," expect larger reserve releases going forward.
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