NEW YORK ( TheStreet) -- Wells Fargo ( WFC) is saying good riddance to making risky home loans. The San Francisco-based bank is restructuring its consumer finance unit, and will no longer originate non-prime portfolio mortgage loans. As part of the move, it's closing 638 Wells Fargo Financial stores in the United States. Wells Fargo expects to initially eliminate roughly 2,800 jobs with another 1,000 positions to be nixed over the next 12 months. The Wells Fargo Financial consumer finance unit currently has about 14,000 employees, and the remainder are expected to be assigned to other units of the company. Wells Fargo shares finished Wednesday at $26.66, up 6%, on volume of 47 million, roughly in line with its daily average churn. The financial sector in general was sharply higher on for the session following a positive earnings outlook from State Street Corp. ( STT). Of Wells Fargo's money-center brethren, Bank of America ( BAC) rose 4.6%; Citigroup ( C) gained 2.9%; and JPMorgan Chase ( JPM) advanced 5%. "Our network of U.S.-based consumer finance stores, which have historically operated as an independent sales channel from our bank operations, have served customers well for more than 100 years," said David Kvamme, president of Wells Fargo Financial, in a statement, "but the economics of a separate Wells Fargo Financial channel are no longer viable, especially now that our customers have access to the largest banking and mortgage store network in the United States." Wells Fargo expects to record pretax restructuring charges totaling $185 million related to the move with $137 million, or 2 cents a share, anticipated in the second quarter. It plans to recognize the rest of the charges in the second half of the year, mostly in the third quarter, and believes the cost savings from the decision will offset the charges within 18 months. Wells Fargo is slated to report its second-quarter results on July 21, and the average estimate of analysts of polled by Thomson Reuters is for a profit of 49 cents a share in the three months ended June 30. The bank said other consumer and commercial loan products, aside from non-prime mortgages, currently offered by Wells Fargo Financial will move to other parts of the company and still be available through its network of community banking and home mortgage stores, which won't be impacted by the restructuring. Wells Fargo said it has roughly 6,600 namesake and Wachovia community bank stores, and another 2,200 Wells Fargo Home Mortgage locations. The loan offerings being realigned will include FHA loans, auto financing, and credit cards, the bank said.
Wells Fargo estimates that less than 2% of its real estate loans were originated in Wells Fargo Financial stores in the first quarter. The bank ended the first quarter with $100.6 billion of what it termed "consumer non-strategic" loans, the majority of which ($82.7 billion) were the infamous Pick-a-Pay mortgages that came over with Wachovia. That total figure is down from $104.9 billion at the end of the 2009, and from $123.8 billion at the end of 2008. Non-prime loans, also known as sub-prime, generally refer to those made to borrowers with poor credit. According to its Web site, Wells Fargo had $1.2 trillion in assets, and more than 278,000 employees at the end of the first quarter. -- Written by Michael Baron in New York.