Updated from 8:37 a.m. ET with market reaction and bank stock action, following the announcement of $920 million in fines against JPMorgan Chase.
The latest announcement brings the total of Wells Fargo layoffs announced during the third quarter to 4,800, including the 2,300 mortgage origination positions eliminated during August.
In the aftermath of the credit crisis of 2008, Wells Fargo took over from Bank of America (BAC - Get Report) as the nation's leading mortgage loan originator. The sharp rise in long-term interest rates since April -- as the market has anticipated an eventual tapering of "QE3" bond purchases by the Federal Reserve -- has led to a sharp drop in mortgage refinance applications and overall mortgage lending volume across the industry.With mortgage interest rates bottoming out during 2012, the total volume of refinancing in the United States was a whopping $1.247 trillion during 2012, according to the Mortgage Bankers Association. The MBA projects a decline in mortgage refinancing volume to $973 billion this year, with an even sharper decline to $388 billion in 2014. The trade group expects total mortgage loan originations to decline from $1.750 trillion in 2012 to $1.592 trillion in 2013 and $1.091 trillion in 2014. Wells Fargo's head of mortgage origination, Franklyn Codel, at a conference in May said the company was very well positioned for the expected volume drop, with its sales staff 100% commission-based, and with frequent meetings to gauge staffing levels. The bank has been focused on holding down its efficiency ratio, which essentially is the number of pennies of overhead expense it incurs for each dollar of revenue. Wells Fargo's efficiency ratio improved to 57.3% in the second quarter from 58.3% the previous quarter and 58.2% a year earlier. During the company's second-quarter earnings conference call, Chief Financial Officer Timothy Sloan said the bank was expecting the efficiency ratio "to remain within our target range of 55% to 59%." Highlighting industry revenue concerns, JPMorgan Chase analyst Vivek Juneja in his third-quarter earnings preview for the largest banks on Wednesday estimated Wells Fargo's third-quarter revenue would total $20.724 billion, declining from $21.378 billion in the second quarter and $21.213 billion in the third quarter of 2012. Wells Fargo continues to be the earnings performer among the "big four" U.S. banks on a relative basis. Its second-quarter return on average assets (ROA) was 1.54% and its return on average tangible common equity (ROTCE) was 16.99%, according to Thomson Reuters Bank Insight. Well Fargo's ROA over the past five quarters had ranged from 1.40% to 1.54% over the past five quarters, while its ROTCE has ranged from 16.27% to 16.99%.