BMO Cuts Estimates on Wells, Others Because of Mortgages

Because mortgage banking revenue is declining faster than expected, BMO Capital Corp. has lowered its earnings estimates for a number of banks, most notably Wells Fargo. The list also includes PNC Financial Corp., BOK Financial, Fifth Third Bancorp and SunTrust Banks.

Earlier this week it did the same for Comerica and M&T Bank.

BMO analysts Peter Winter and Lana Chan said presentations at a recent investor conference had confirmed concerns that loan growth remains sluggish. Add to that the impact that rising rates have had on mortgage application activity.

Previously, BMO had been forecasting a 31% annualized decline in mortgage revenue for this group of banks in 3Q13 based on 2Q13 results.

“Most management teams were guiding to a 20%-30% un-annualized decline in mortgage origination volumes. We took down mortgage banking estimates across the board,” Winter and Chan wrote.

BMO is now forecasting a 60% annualized declined in mortgage banking revenue.

Wells Fargo finished 2Q13 as the nation’s leading lender with volume of $114 million, more than double No. 2 Chase, but down 13% from 2Q12.

As for the others, SunTrust, in the 10^th slot, had a 10% year-over-year increase in volume. Fifth Third, ranked 12^th, was down 2%, while PNC, ranked 18^th, had a 30% year-over-year volume increase. M&T, at No 28, was also up 33%. BOK, 49^th, was up 42%. Comerica, No. 205, was down 21%.

Of the banks it did either raise or maintain its current estimate, BMO noted that KeyCorp and Zions Bancorp do not have exposure to mortgage banking. Of the other two, BB&T and Regions Financial, they have other factors that offset BMO’s projected drop in mortgage banking income.

BB&T finished 2Q as the ninth largest lender, with its volume up 15% over 2Q12. Regions, No. 34, was down 7%.