This Day On The Street
Continue to site
ADVERTISEMENT
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

Wells Fargo's Rate Strategy Pays Off

"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 - Get Report) 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 - Get Report), Bank of America (BAC - Get Report) and Citigroup (C - Get Report) 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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BAC $15.95 0.63%
C $52.00 0.48%
JPM $62.78 0.34%
WFC $52.58 1.10%
AAPL $110.77 -1.40%

Markets

Chart of I:DJI
DOW 16,385.69 +34.31 0.21%
S&P 500 1,959.06 +10.20 0.52%
NASDAQ 4,759.1670 +9.1880 0.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs