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Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM), Citigroup Inc (C): A Rebounding Housing Market will Help this Bank

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The mortgage industry is one of the leading business sectors in the United States. For mortgage service providers, profitability depends on the volume and the prevailing interest rates. In the United States, JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C), Bank of America Corp (NYSE:BAC) and Wells Fargo & Co (NYSE:WFC) are among the leading home-mortgage service providers. Five of the largest banks in the nation have a market share of more than 53.2%.

According to FBR forecasts, small lenders will grow in the future and will be able to cover almost 40% of the market share by the end of 2014. Therefore, the future will be even tougher for the largest mortgage lenders.

Wells Fargo’s business mix

Wells Fargo & Co (NYSE:WFC)

Wells Fargo & Co (NYSE:WFC) is a bank and financial-services holding company. It is divided into three business segments: wholesale banking, community banking, and brokerage and retirement. It also provides financial services through subsidiaries in the field of commercial banking, corporate banking and investment banking. In short, the bank has a very diversified business model.

Since Wells Fargo is one of the largest home lenders in the US, its home-lending unit is a key profit driver for the bank. The bank’s home-lending unit offers home buying, refinancing solutions and renovation financing. The unit reported results that were below expectations for the first quarter.

Financial overview

In the first quarter of 2013, Wells Fargo & Co (NYSE:WFC) reported net income of $5.2 billion, up 22% over the year-ago period. Wells Fargo’s stock is currently trading at $39.26 per share. Over the last two months, the share price increased 6%. The most recent EPS results were $3.53, compared to JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc (NYSE:C)’s most recent EPS of $5.60 and $2.72, respectively. Due to effective cost controls, Wells Fargo & Co (NYSE:WFC)’s operating expenses decreased by 7.8% over the prior quarter.

Wells Fargo and mortgage banking

The bank’s shareholders don’t need to be worried about the decline in the bank’s market share in US-mortgage originations. According to the latest news, Wells Fargo & Co (NYSE:WFC)’s mortgage-banking activity is expected to show healthy results in the coming quarters. A recent surge in the share price was driven by overall healthy housing market activity. In the first quarter of 2013, the median resale home price jumped 11.3%, which is the biggest rise in the last seven years.

Nonetheless, Wells Fargo reported a decline in its mortgage-banking business at the end of the most recent quarter. In the first quarter of 2013, total mortgage revenue was $2.8 billion, down 9% over the previous quarter, while mortgage originations dropped 16%.

Wells Fargo & Co (NYSE:WFC)’s home-loan application revenue at the end of the first quarter of 2013 was $74 billion, down from $81 billion in the year-ago period. Wells Fargo is still the market leader in the US mortgage market with a market share of 33.9%, while JPMorgan Chase & Co. (NYSE:JPM) occupied the second place with a 10.6% market share.

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