Wells Fargo & Co (WFC)’s Uncanny Knack for Sensing Trouble

The news that Wells Fargo & Co (NYSE:WFC) is exiting the mortgage joint venture arena is grabbing headlines, but it shouldn’t surprise anyone. The decision comes on the heels of new regulations, stemming from Dodd-Frank, which will negatively affect this type of business. Rather than fighting against the tide, Wells has decided to end its joint ventures with its eight partners.

Wells Fargo & Co (NYSE:WFC) obviously saw this day coming. A bank representative, Franklin Codel, told Bloomberg that Wells once participated in over 100 of these joint ventures, so it’s clear that things have been winding down for some time. According to Codel, it will take from 12 to 18 months to unwind the current eight partnerships.

Keeping an eye on legal issues
This move by Wells Fargo & Co (NYSE:WFC) is not unusual. Time and again, the fourth-largest U.S. bank has read the writing on the wall, making changes as needed to limit future legal and regulatory problems.

The bank’s foresight hasn’t kept it completely out of trouble, though. Along with fellows Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), and JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC) signed off on the National Mortgage Settlement, pledging to rectify its foreclosure practices.

Considering how dominant Wells Fargo & Co (NYSE:WFC) has been in the mortgage market over the past few years, it’s understandable they would experience at least some mortgage-related problems. Imagine how much additional legal expense it would currently be incurring, however, had it not — in another prescient move — begun to back away from subprime lending back in 2004.

Similarly, Wells Fargo & Co (NYSE:WFC) ceased wholesale mortgage lending a little over one year ago, just as it announced its settlement with the U.S. Department of Justice regarding alleged discrimination tied to a sampling of its mortgage loans written between 2004 and 2009. Though Wells noted the termination of its wholesale channel was separate from the settlement, it stated that shutting down that business would give the bank more direct control over its mortgage lending practices. Earlier, both Bank of America Corp (NYSE:BAC) and Citigroup Inc. (NYSE:C) had also exited this type of lending.

The effect on lending should be minimal
Since Codel notes that joint ventures made up only 3% of new loans in the second quarter, this move shouldn’t affect the bank’s lending pipeline in any appreciable way. As for the partnerships, at least one is planning to continue on, without Wells Fargo & Co (NYSE:WFC) by its side.