With a slowdown in mortgage refinancing and home loans, Wells Fargo & Co.(WFC) is shedding 1,900 employees from its mortgage unit, according to media reports. This represents less than 1% of its total workforce.
Employees were informed about their job cuts last month and they were given a 60 days notice. Most of the positions that Wells Fargo is laying off involve temporary while only a few were in servicing operations. The company might also transfer some of the employees to other departments. The current lay offs are ongoing at several Wells Fargo locations across the nation.
Wells Fargo employed several people on short-term assignments to support the increased home loan and refinance applications at its various locations. When interest rates were favorable, the company hired these workers as a surge in mortgage applications was visible in 2010, particularly for mortgage refinancing.
However, in recent months, the fast-paced demand for consumer refinancing gradually slowed down due to a slight increase in interest rates and reduced sales of existing homes. After evaluation of the current market and loan application volume, Wells Fargo expects a significantly reduced mortgage market in 2011.
In March, Bank of America Corp. (BAC) also announced jobs cut in its consumer and small business banking unit. The layoffs forms a part of BofA's ongoing efforts to overhaul its consumer banking unit.
With its diverse geographic and business mix, Wells Fargo is well positioned compared to its peers. The Wachovia acquisition and the exit of some of the smaller players facilitated the company to garner a larger share in the mortgage markets. Yet, the recent financial regulations are likely to have a negative effect on the company’s top- and bottom-line results. Besides, costs associated with loan resolutions and loss mitigations are also expected to remain elevated in the near term. Nevertheless, we believe that the present job cuts will enable the company to reduce expenses, alleviating bottom-line pressure.
Wells Fargo currently retains its Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Also, considering the fundamentals, we are maintaining a long-term “Neutral” recommendation on the stock.
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