This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Wells Fargo's Rate Strategy Pays Off

Stocks in this article: WFC

"Current financial market and economic conditions present significant risk management challenges to institutions of all sizes," warned the feds.

Fourth-quarter MSR results at the country's four giant banks showed signs of those challenges already. Net results were still positive, but showed a mix in fee income and hedging performance, as the refinancing wave that kicked off in the spring abated, and some banks did better than others in adjusting derivatives exposure along with the rate outlook.

Wells Fargo (WFC) appears to have been the most bullish on the potential for an interest-rate hike in the near-term. The bank reduced what is known as its "carry trade" -- a strategy of funding long-term assets with short-term liabilities that have a higher rate of return -- by $34 billion, while JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C) all took the opposite tack, increasing theirs on average by roughly the same amount.

But whereas Bank of America and JPMorgan lost money on their MSR derivatives, Wells Fargo earned a pretty penny, showing that its early adoption is paying off.

Wells held $16 billion worth of MSRs at the end of 2009, a $1.5 billion increase from the previous quarter. It earned $2.1 billion in servicing income, and $1.9 billion in market-related valuation changes, largely from effective hedging. Fair value adjustments accounted for roughly $830 million, while changes in valuation models accounted for a $1 billon gain.

CFO Howard Atkins cited "solid results" and "strong" hedging activity. He also predicted that MSR income could remain "relatively high" in the near-term if its strategy continues to pay off.

2 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,073.39 +43.18 0.24%
S&P 500 2,089.45 +7.57 0.36%
NASDAQ 4,798.4480 +24.9760 0.52%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs