In mid-January, sales managers in
Wells Fargo Co. (WFC)’s mortgage unit, the largest in the U.S.,
gathered at a hotel south of San Francisco dressed as cowboys,
six shooters strapped to their hips.
The invitation said “40% or BUST!!” The goal: A bigger
share of the business than they already control — about 34
percent of all U.S. home lending and 13 percent of mortgages for
purchases in the first quarter. About a dozen managers urged the
audience of 500 loan officers to lend more, according to two
attendees who asked their names not be used because they aren’t
authorized to speak publicly. Onstage, the men had fake
mustaches and wore red-flannel shirts and jeans, the women long
dresses like those in a movie western, one of the people said.
Chief Executive Officer John Stumpf has said the bank
doesn’t have market-share goals, even as it held the San
Francisco rally and encouraged salespeople in New York and
Atlanta. Regulators such as Edward J. DeMarco, acting director
of the Federal Housing Finance Agency, have expressed concern
about increasing concentration in lending, and analysts say the
housing market has become too tied to the San Francisco-based
lender since it successfully navigated the 2008 credit crisis.
“The part that amazes me is that back in the early days
Wells Fargo said, ‘we don’t want as much market share,’ ” said
David Lykken, a managing partner at Austin, Texas-based Mortgage
Banking Solutions, who has more than 37 years of mortgage-
industry experience. “Now, in many ways, they are the market.”
Record Share
Wells Fargo’s first-quarter market share for all mortgages,
including new homes and refinancings, equal to $130 billion, is
the most on record and more than triple the closest competitor,
JPMorgan Chase Co. (JPM), according to Inside Mortgage Finance, a
trade journal. It’s up from 30.1 percent in the preceding three
months and 13.3 percent in 2006.
Mortgage originations and sales accounted for 24 percent of
the lender’s fee-based revenue in the quarter, with another 2
percent coming from servicing, according to an April 13
presentation. The lender reported $2.9 billion in income from
mortgage banking as the Federal Reserve pushed down borrowing
costs and government refinancing programs encouraged lending.
The bank wants more. The Jan. 19 sales rally at the San
Francisco Airport Marriott Waterfront hotel in Burlingame, about
15 miles south of San Francisco, was billed as a “Purchase
Stampede” in a memo e-mailed to employees, a copy of which was
obtained by Bloomberg News. The invitation featured six horses
pulling a stagecoach, the bank’s traditional logo, and trailing
a banner with the words: “40% or BUST!!”
One man wore chaps and showed off a lasso, while some women
wore corsets, one of the people said.
Motivating Salespeople
The rally was aimed at motivating salespeople to lend more
for new-home purchases, national sales manager Greg Gwizdz said
in a June 8 telephone interview. Wells Fargo doesn’t have a
“stated market-share goal” and if its portion grows it’s “a
result of customers choosing us,” he said.
The bank’s retail channel controlled 13.3 percent of the
market for loans to buy a house in the first quarter, according
to data compiled by Inside Mortgage Finance. The rally didn’t
focus on other types of originations, including refinancings
completed by Wells Fargo salespeople, or correspondent and
wholesale channels, where the bank buys loans from other
lenders, Gwizdz said.
“We are almost backing into this,” Gwizdz said. “If we
had some crazy high market share number, in order to get that
number a lot of people came here to get their mortgage and they
came here to get their mortgage because we’re doing something
right.”
Skits, Discussions
The event gathered salespeople for a day of motivational
speeches, skits and discussions about ways to gain a greater
slice of the market, the people said.
Senior mortgage executives attended the rally. Drew
Collins, billed on the invitation as a “special guest,” is a
division sales manager and senior vice president based in the
Sacramento area, according to Vickee Adams, a spokeswoman.
Arlene Allert, a retail regional sales manager and vice
president based in the Bay Area, also attended, according to the
people. Continental breakfast was served and the coffee ran dry,
one person said.
Adams declined to make Collins and Allert available for
interviews.
Salespeople elsewhere are receiving a similar message. In
New York, loan officers are encouraged to reach for 40 percent
or more, according to a person familiar with the strategy. In
Atlanta, they’re induced with prize drawings to file more
applications and meet more real-estate agents, according to
another person, who described the efforts as aggressive.
Customers’ Needs
Stumpf has repeatedly said he doesn’t care about Wells
Fargo’s market share, and is more concerned with serving the
needs of customers. When pressed by analysts to comment on the
lender’s growing investment bank, and its high growth rate and
steady progress up the league tables, Stumpf said in January he
couldn’t “care less.” He reiterated that view May 31, when
asked by Sanford C. Bernstein Co. analyst John E. McDonald
about the company’s growing command of the mortgage market.
“I don’t care if we’re 20 percent of the market or 10
percent or 30 percent,” Stumpf said.
Wells Fargo executives have said it wasn’t their goal for
the company to become the largest lender. Refinancings have
bolstered market share, according to Chief Financial Officer
Timothy Sloan. These will account for about 68 percent of the
market, or $870 billion this year, according to projections from
the Mortgage Bankers Association.
Market Position
“If we’re talking about the business two years ago, I
don’t think we would have imagined that our market share would
be where it would be today,” Sloan said during a May 1 investor
conference. “We’re going to continue to be focused in the
business. We’re going to continue to want to grow it.”
In every investor presentation except one since the
beginning of 2011, Wells Fargo has included an early slide
listing the businesses where it holds a No. 1, No. 2 or No. 3
market position.
“I’ve never been a big believer of market share for market
share’s sake,” said Ralph Cole, a senior vice president of
research at Portland, Oregon-based Ferguson Wellman Inc., which
manages $3.1 billion, including Wells Fargo shares. “If their
underwriting standards are dropping to achieve it, that’s what
would worry us as investors.”
Standards Maintained
There aren’t signs those standards are slipping, said Cole
and Lykken, as well as Clifford Rossi, a former risk manager and
managing director at Citigroup Inc. (C) who’s now at the University
of Maryland’s Robert H. Smith School of Business, and analysts
including Paul Miller at FBR Capital Markets in Arlington,
Virginia. About 90 percent of Wells Fargo’s originations are
sold to Fannie Mae, Freddie Mac or Ginnie Mae, Mike Heid, the
Des Moines, Iowa-based head of the mortgage business, said May
22.
Wells Fargo shouldn’t be blamed for its dominance since
it’s a function of rivals’ retreat and not its own actions,
Pacific Investment Management Co.’s Scott Simon said May 7 at a
Mortgage Bankers Association conference in New York.
“It’s not Wells Fargo’s fault they got so big,” said
Simon, the mortgage-debt head at Newport Beach, California-based
Pimco. “If Wells Fargo went back to 20 percent, tried to cut
themselves back more, it’d be hugely restrictive on credit.”
Regulators have taken notice of the concentration. DeMarco, acting director of FHFA, the overseer of Fannie and
Freddie, has said he’d like to see a more diverse mortgage
market.
Origination, Servicing
“We have seen a great deal of concentration in mortgage
origination and in mortgage servicing in recent years,” DeMarco
said May 15 at a speech in Washington. “Policymakers need to
think hard about where and how regulatory requirements
contribute to this growing concentration in the marketplace, and
what might be done to reverse this.”
At a May 31 conference, Bernstein’s McDonald asked Stumpf
whether the company was perhaps “getting too big.” It also
raises questions about Wells Fargo’s status as a too-big-to-fail
lender whose collapse could imperil the U.S. housing market,
according to Mark Calabria, a director of financial regulation
studies at the Cato Institute in Washington.
“The more concentrated anybody is in a specific market is
worth watching,” Calabria said in a phone interview. “This
potentially increases the possibility that they are looked at as
too big to fail. Were they to get into a lot of trouble the
government would have to do something” to keep credit flowing
to U.S. homebuyers, he said.
Too Good
Cole said Wells Fargo’s history of avoiding many of the
mortgage pitfalls that felled rivals earns them “the benefit of
the doubt.” In 2010, the Securities and Exchange Commission
showed that Paulson Co. had rejected subprime mortgage bonds
from Wells Fargo when it was trying to find assets that the
hedge fund could bet against because the quality of the
underlying loans was too good. The bank hasn’t posted an annual
loss for at least a decade.
Wells Fargo is the most creditworthy of the large U.S.
lenders, according to credit-default swap prices and its stock
is up 18 percent over the last 12-months, outpacing all lenders
in the KBW Bank Index (BKX) except for U.S. Bancorp.
Executives highlight the share they relinquished when firms
such as Countrywide Financial Corp. offered cheaper pricing on
loans with fewer document requirements and zero down payments.
Heid pointed to the four-year period last month with a graphic
titled “Industry leading market share.” Three arrows pointed
to the years of 2004 to 2007 on a bar chart with the note:
“Market share forgone when industry didn’t adhere to
responsible lending principles.”
Countrywide Fate
Countrywide was the largest U.S. mortgage lender as
recently as 2007 before billions of dollars in soured loans
prompted its sale to Bank of America Corp. (BAC) Countrywide’s losses
have continued to plague the Charlotte, North Carolina-based
lender, leading to more than $40 billion in losses and its
retreat from the market. The bank held 4.2 percent of the market
in the first quarter, according to Inside Mortgage Finance.
Wells Fargo is the only mortgage company with a top-5
ranking in originations and servicing each year since 1994,
according to the bank.
“It will be harder for institutions to get by with a
sizeable market share gain because regulators are watching these
guys carefully,” Rossi said. “I’m less concerned than I would
be if we were back in the days when they had all these other
products. It’s the edgier stuff that got us all in trouble.”
For now, Wells Fargo will continue to motivate salespeople
to expand the business: another rally is scheduled for June 21.
To contact the reporter on this story:
Dakin Campbell in San Francisco at
dcampbell27@bloomberg.net
To contact the editors responsible for this story:
David Scheer at
dscheer@bloomberg.net;
Rob Urban at
robprag@bloomberg.net.
Wells Fargo Bankers Toting Guns Aim at 40% of Market
Scott Eells/Bloomberg
Pedestrians walk past a Wells Fargo Co. bank in New York.
Pedestrians walk past a Wells Fargo Co. bank in New York. Photographer: Scott Eells/Bloomberg
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