Wells Crippled By Mortgage Pipeline Shutdown: Net Interest Margin Slides, Reserve Release Soars

Tyler Durden's picture

Take all the talk about how "soaring" (to below 3%) rates will not impact housing, or that rising rates are great for banks because they help boost Net Interest Margins, and dump it in the trash. Why? Exhibit A - Wells Fargo, the bank which is most reliant on the housing market (unlike such prop trading powerhouses as JPM and Goldman) to generate revenues (which missed expectations) which just announced its Q3 earnings. The numbers of note were not among the fudged top or bottom-line headline grabbers. They were far uglier, and were as follows.

First, in order to "beat" the EPS of $0.97, with an EPS $0.99 print, or $5.6 billion, the bank was forced to dig deep in its bag of accounting gimmickry and pull out a whopping $900 million in loan loss reserve releases, driven by a $1 billion net charge off number, offset by just $0.1 billion in provisions: at least the latter number was not negative. This was the highest release since 2011 and a surge compared to recent trends.

Next, remember how every pundit was jumping on their head proclaiming that as a result of soaring rates, Net Interest Margins would explode higher leading to an EPS boost? Well, as usual, the experts were 100% wrong. At 3.38% this was the lowest ever, and also well below the 3.43% expected. Oops.

But the biggest pain was in the company's pure play primary line of business: mortgage origination. And as we have been pointing out all quarter, as a result of a 100 bps jump in rates since the taper talk in Q2, consumers' propensity to begin the mortgage pipeline, has plunged. Sure enough, Wells was kind enough to point that out moments ago, when it said that its Q3 mortgage originations were a multi-year low $80 billion, or a 29% drop sequentially, and a massive 42% Y/Y.

So: what is this housing "recovery" (aside from the foreclosure stuffing, the offshore money laundering, and the now finished REO-To-Rent scheme) everyone keeps talking about again?

Source: Wells Fargo

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J Pancreas's picture

Suck it Buffett. Its a great Friday when that flacid ukulele strumming crony capitalist pig sees bad news from a too big to fail he holds. 

HoofHearted's picture

JPM and WF both have awful results, and yet FAZ is +0.4% after an 8% drop yesterday. Gold and silver folded like a Boehner this morning with news that the US isn't any closer to a debt ceiling deal. We live in stupid times, not even interesting ones. I think we mostly live with stupid people. Oh yeah, I did read that piece about Americans here on ZH....

HardAssets's picture

Go LONG criminality, greed, and stupidity.

SHORT  decency, intelligence & common sense.

Mike2756's picture

That's alright, they'll just tack on more fees.

JFKFC's picture

I feel your pain on $FAZ... Though I did load up on 2016 calls when they hit the market in September.

Stoploss's picture

Now we know why Buffet's hand picked CEO broke and ran like a horse with his balls on fire..

Dr. Engali's picture

Problem is that he doesn't care. His boy Zero will make sure the old fucker is well taken care of.

TaperProof's picture

They did the morning gold slam down again, far too obvious.

Mike in GA's picture

Where's that long awaited housing "recovery"? In the fertile minds of the desperately-seeking-green-shoots-politicians.

ATM's picture

Going to be complete with massive QE, rate manipulation downward and talk of "saving us" from the perils of the markets clearing bad debt. 

monopoly's picture

And they smack gold again. Soon to be the trade of a lifetime. They can only keep this up for so long. Then it will be our turn. But not quite yet.

Orly's picture

Commodities are getting crushed across the board.  You had your chance to sell @ $1429.

Now, you're the bag-holder.


fonzannoon's picture

wow sticking your finger in the wound. (it hurts)

Orly's picture


Just passing along what the voices in my head tell me.  Oh, and the charts, too.  That's what they say.

The tightest resistance to the downside happens at about $900/oz.


ATM's picture

No problem. Would love to see gold $900 because in the end there is only one outcome for the yellow metal. It will be a store of real wealth and the currencies it is now denominated in will vanish. 

$900/oz seems like a fair trade to me!

donsluck's picture

Still over double what I paid.

greatbeard's picture

>> sticking your finger in the wound.

Inquiring minds want to know, how can you tell she's fingering herself?

SheepDog-One's picture

Sell for what, LOLlars to buy stawks? No thanks.

HardAssets's picture

Maybe New Austrian School Dr. Antal Fekete is right and there will never be a true price for gold quoted.

That is, theyll keep up the criiminal price quote distortion till the whole system implodes and the paper gold futures market crashes. Then no one would bother to price gold in dollars because no one would give up an ounce for fiat toilet paper.

If that were to happen, you'd REALLY want to have some PMs. Things wouldnt look too pretty at street level.

Websearch Fekete and permanent gold backwardation.


Bobbyrib's picture

If you have been paying attention for the past few years, that is kind of obvious.

Never One Roach's picture

The housing market is flooded with new houses and literally hundreds of vacant shadow inventory houses in my area.

Not to mention the thousands of massive apartment complexes 'they' are  building ... the oversupply is deafening!

Already these apartments are suffering and have to offer 3 months free rent on any size apartment!

Someone the other day said they noticed lots more house "For Sale" signs up this week so I drove around the Hood here and was wide-eyed, open-mouthed at the number of "For Sale" and "For Rent" house signs.

I do understand the mind-numbing oversupply but have no idea what caused so many empty houses to be listed just right now.

Perhaps banks/sellers/owners are looking at some huge market corrections this winter?

Any other thoughts?

HardAssets's picture

Interesting local housing observation. - - - Over the last 10 days or so there was a solicitation from the local Chase bank branch manager on the answering machine. We don't do banking business with them and that branch is about 30 miles away (rural area).  We do have one of their credit cards. - - - - Such low probablility of success solicitation calls were never made in the past and my first thought on hearing it was "They must really be hard up for business."

I immeditatly erased it from the machine.

Bobbyrib's picture

All the financial companies are getting desperate for people to expand their businesses. If you look at the openings for Wall St jobs, most are sales oriented.

InflammatoryResponse's picture



We have more for sale signs up in our neighborhood, than I've seen in a long while.  and some of those have been for sale for quite a while that have been joined by the "newcomers".


my guess is that people think it is only going to get worse.  so they figure they need to strike now.



Doyle Hargraves's picture

BWAHAHAHA! Suck on that Wells Fargo!

PS: It will only get worse from here.

yrad's picture

I'm a HMC. People are asking themselves if they should refi their current 6% rate or simply move/downsize into a 4.375% rate and kill 2 birds with one stone. People that bought in the last 2 years, myself included, are quickly realizing that the 5-7 year home they bought is most likely their forever home, or at least a 15-20 year home. Our saving grace is going to be the first-time home buying college graduate landing a Cush new job with low debt... Oh wait..

HardAssets's picture

There are a lot of Boomers out there whose retirement 'plan' included selling the house and downsizing when the kids left. (And 'home improvements including the new hot tub and expensive kitchen remodel were 'good investments'). That aint gonna happen now. Too many sellers with the same plan and no qualified buyers on the horizon. Plus, many of the kids graduated from school are still living at home. They can only find lowly part time jobs, at best.

Kim Jong-Il's picture

Strategic default is the new cash out refi.

Bobbyrib's picture

That's what happens when their children's generation is "not guaranteed jobs." Oh well, most of them will work into the grave.

HardAssets's picture

The jobs got 'globalized' so we could have the new 'high tech service jobs of the future'.

No . . . wait a minute . . . they outsourced those to the guys in India (and Gates is importing more of them on visas  because he 'can't find American workers')

But the kids will work into the grave to pay the interest on the trillions given to the banksters & for the big insider corporations fat government no bid contracts. (It costs lots of money to bomb men, women, and children overseas you know.)

Of course, they stole most of our money through fiat money inflation and taxation. They took a big chunk off the top and give a little bit of our money back which they call 'entitlements'. They use those as a means of control over us. Thats a big part of the 'debt' - giving you back a pittance of your own money.

But  "'we have to pay our 'debts', its the right thing to do."


Didnt they outlaw slavery in America already ?

We're an 'exceptional' nation ?   Maybe exceptional chumps.


youngman's picture

The apartment construction growth is the new boom....building thousands in Denver....way to many I think...but they are getting financing again....

Commander Cody's picture

People are going to need a place to live after the banksters steal their homes.

MachoMan's picture

That's kind of a curious term considering the banks gave them the money for the home in the first place and the home owners are in default of their obligation(s) to the banks.  Further, it's highly unlikely that any equity is getting trashed either (which ought to belong to the homeowner)...  If by "steal" you mean "attempt to enforce the most fundamental notion of the contract," then yeah, I guess it's stealing...

The only complaint for the foreclosure process is the sanctity of the judiciary and the enforcement of the rule of law...  The equities of the situation are all in favor of the banks (they lent money to a person, that person has defaulted on the note, the bank is entitled to the collateral).  This process has to be formal and there needs to be more oversight and safeguards to ensure the proper parties are present in the lawsuits...  however, once the proper parties are determined to be in the lawsuit, they're open-and-shut cases...  slam dunks...  the homeowners have no legal defense to the allegation that they're in default.

Thisson's picture

I understand where you're coming from, but that entire speech you just gave is built on a foundation that assumes we have an economy using honest money, where banks are loaning out funds that someone actually saved, and that just isn't the case.  Instead, banks make loans by issuing credit via a bookkeeping entry, and then they go to the Federal Reserves to obtain the "reserves" that they've already lent out.  And those "Reserves" are just a similar bookkeeping entry created from the void by the Federal Reserve.  It's entirely the opposite of the process we were tought in ECON 101 where the bank is loaning out savings entrusted to them by depositors.

This article by economist Steve Keen, The Roaving Cavaliers of Credit, explains the actual process in detail.  It is theft!

Source: http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/  

MachoMan's picture

Instead, banks make loans by issuing credit via a bookkeeping entry, and then they go to the Federal Reserves to obtain the "reserves" that they've already lent out.  And those "Reserves" are just a similar bookkeeping entry created from the void by the Federal Reserve.

This is a large talking point, but it's not particularly well worded.  The "bookkeeping entry" used by loan originators is completely different than the "bookkeeping entry" used by the FED.  The FED conjures money out of thin air and answers to no one, however the originators must answer to all their lenders (e.g. the FED).  In other words, there is a built in mechanism for banks to fail (other than the FED).  If banks are allowed to fail, then this money is hardly any less honest than any other, the presumption being that risk aversion (and self interest) helps ensure the sanctity of the money.  Obviously once the incentive structure is changed, so too does the nature of money.  Likewise, if the mothership (the FED) decides to go balls-out, then there is no domestic check and balance.

I'll also posit that our monetary policy has tainted everything at this point and it's pretty difficult to draw a distinction between loans, the money reimbursed by insurance companies (and the government) for medical services, the payment to corporate consel for legal fees, a professor's salary, a talkshow host's salary, and a lawn mower's salary.  It's all purely dependent upon monetary largesse.  It didn't start out that way, but it's where we are.  You might say that some have to do more to get their money, but I think that's a distinction without a difference.

Commander Cody's picture

Forget the bookkeeping BS.  The housing market was a bubble blown by the banks (they, in essence, are the FED - check who is on the BOD).  Stooges, morons, idiots and me bought houses during the bubble that are now underwater (except ours).  Many were bought by folks who couldn't pay the mortgage.  The banks knew that so they packaged mortgages into toxic shit and sold it to more stooges, morons and idiots, but not me.  Then, when this shitstorm blew up they got the US taxpayer and ordinary citizen to take the loss.  The FED and US gubmint made the banks whole so the bankers could live large and continue the looting.  So, when the foreclosures all clear, guess who'll own the homes again - of course, the banks because in the end, if you have a mortgage, then the home is not yours its the bank's.

donsluck's picture

Macho Man and Commander Cody are not arguing. One thinks and the other feels. They need each other.

Consider this: all money is loaned into the economy by the Fed and must be paid back with interest (which is also loaned...etc...). This means that the only time money enters the economy without interest, unencumbered if you will, is though bankruptcy where the loans are forgiven in court. Think about that.

MachoMan's picture

And bankruptcy ought to be a great starting point...  fortunately or unfortunately, the idiots that bought houses they shouldn't, aren't getting their just desserts because the banks are too scared to take the losses...  which ensures that the banks don't get their just desserts either (after a bit of political meandering).  The law has plenty of these "safeguards" or "checks and balances" built in, however the rent sought by self interest cannot allow competition to occur.  [also, money enters the economy with the expectation of interest...  it's only after non-performance of the loan does the expectation change...  and it's only after bankruptcy, agreement, and/or court order that the debt becomes extinguished; it is completely possible that money enters the economy, collects interest, and then is discharged].

This whole thing is just a game of hungry hippos...  and we're just bickering over who gets the most marbles, not how or why we're here and what we need to do to fix it.

MachoMan's picture

Which makes a lot more sense than allowing would-be apartment goers to rent vacant shadow inventory...

Bobbyrib's picture

That would be far too cost efficient for the renters. That is no way to game a system.

MachoMan's picture

Actually, it's a terrible idea because they get to stay in their homes for free at present due to banks not wanting to eat the turd...  any rent > free.  Better to just originate more bad loans, push them up the pipe, and let .gov (us) eat the turd.

Bobbyrib's picture

I guess it's easier to lend than to have to sign temporary lease agreements..

Hubbs's picture

Fuck Wells Fargo. I am now almost to the point where I can close out the HELOC account that has sat dormant for the past 6 motnhs, now that I have paid those motherfuckers off and have enough reserve to give them the finger. Meanwhile they release information that I still have this account to Key Bank NA subsidiary  Key Finance Corporation, meaning I can "afford to borrow" to pay this  slimeball Key Equipment Finance Co for an elctronic medical records software program that the government basically made me buy against my will ( or else would not get reimbursed fully by medicare. (CMS)

 Of course, once I was forced to close my practice then I have to kee paying for this POS software program that I can't use, or resell, because it is so bad. These EMR software companies know that it is like shooting doctors in a barrel because we have to go electronic, and these software compainies know they can foist their shit on us, and before the contract ink is dry, Next Gen Software Co has sold this toxic piece of crap to Key Equipment  Finance, just like the mortages that Country Wide/ Wachovia now Wells Fargo was doing.These bankers should all be lined up in front of a filthy sewage ditch and shot!


Can Banks legally divulge existance of a HELOC to a nother collector?

1eyedman's picture

the heloc will show on your credit report.  and buried in all the fine print, is essentially, their ability to share your information with parties they do business with...other banks, finance companine, collection cos., credit reporting companies etc.      you are either on the grid and there is no privacy, or off the grid with cash and metals.

Thisson's picture

What stops you from providing your services on a cash-on-the-barrel basis and ditching all of these crushing requirements?