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

Banks to Suffer Big Decline in Mortgage Revenue in 2013

Jefferies also said mortgage production revenue for the group of eight large-cap banks more than doubled in 2012. The firm estimates that their mortgage production revenue will decline by 19% during 2013 and by another 24% in 2014.

Usdin says Wells Fargo (WFC - Get Report) will take the biggest hit on gain-on-sale margins during 2013, with the margin declining by 43 basis points to 1.92%, dropping further to 1.55% in 2014. Jefferies also estimates that Wells Fargo's mortgage production revenue will decline to $8.79 billion in 2013 from $12.2 billion. For 2013, Usdin estimates Wells Fargo's mortgage production revenue will total $6.63 billion.

Usdin rates Wells Fargo "buy," with a $39 price target, estimating the company will earn $3.55 a share this year, with EPS increasing to $3.65 in 2014.

A Downgrade for SunTrust


Usdin on Friday downgraded SunTrust (STI - Get Report) of Atlanta to "hold" from "buy," while lowering his price target for the shares to $30 from $32. "We are more concerned about the revenue transition gap that could emerge with the likely refi slowdown and gain-on-sale margin normalization."

Jefferies estimates that SunTrust's mortgage gain-on-sale margin will decline to 2.86% in 2013 from 3.29% in 2012, with the margin declining further to 2.61% in 2014. The firm also estimates that the bank's mortgage production revenue will decline to $828 million this year from $1.056 billion in 2012, declining further to $679 million in 2014.

Usdin estimates the company will earn $2.70 a share this year, with 2014 EPS of $2.85.

Taking It a Step Further


Jefferies conducted a "static test," which Usdin described as a "'what if?' scenario in which gain-on-sale margins reverted to 2011 levels overnight." The analyst said "banks in our stress test could see 5% negative EPS revisions for 2013 and 3% revisions in 2014 vs. our published EPS estimates."

SunTrust, along with BB&T (BBT - Get Report) of Winston-Salem, N.C., and Fifth Third Bancorp (FITB - Get Report) of Cincinnati "screen the worst in our simple exercise, relatively speaking, given the size of their underlying mortgage businesses and above-average gain-on-sale margin expansion seen over the last year, Usdin said.

Under the "2011" scenario, SunTrust's 2013 EPS estimate would decline by $0.27 and his 2014 estimate would decline by $0.16.

2 of 3

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
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!
SYM TRADE IT LAST %CHG
BBT $37.78 0.00%
FITB $19.54 0.00%
STI $40.47 0.00%
WFC $54.70 0.00%
AAPL $130.28 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs