Wells Fargo's Fair Value Swells On Mortgage Business

NEW YORK ( Trefis) -- Wells Fargo ( WFC) came out with yet another record income statement for the second quarter Friday.

The largest bank in terms of market capitalization continues to demonstrate that there is immense value to be extracted from plain-vanilla "traditional" banking services of loans and deposits.

The undisputed leader of the country's mortgage market tightened its grip on the housing industry, which has shown signs of opening up this quarter. The quarter also saw Wells Fargo finalize the acquisition of BNP Paribas's North American energy lending unit and a subscription finance loan portfolio from WestLB.

We have revised our price estimate for Wells Fargo's stock upward from $35 to just under $38, largely due to an increase in our growth estimates for the bank's mortgage business and from the bank's demonstration this quarter that its cost saving plan is on the right track.

The new price is at a premium of about 10% to the current market price. (See our complete analysis of Wells Fargo here .)

Mortgage Business Is Key

Wells Fargo originated $131 billion in mortgage this quarter, more than the $129 billion in the first quarter and $120 billion in the fourth quarter of 2011. The bank already boasts of originating one in every three mortgages in the country, and things are only poised to improve in coming quarters.

At the same time, the fee income generated by the bank by servicing mortgages for others is also on the rise along with the actual size of the servicing portfolio. This is evident from the fact that the total mortgage banking fee income for Wells Fargo has almost doubled from $1.6 billion in the second quarter of 2011 to $2.9 billion in the seconc quarter of 2012.

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