Wells Fargo is Closing all Personal Lines of Credit

[ExFlyBoy5]

Interesting development. More signs of an impending financial correction? I sure don't know but I am giving some thought of taking some of my remarkable gains off the table and hang out on the side lines for a bit as it seems kinda frothy out there.

https://www.cnbc.com/2021/07/08/wel...wn-all-personal-line-of-credit-accounts-.html

“Wells Fargo recently reviewed its product offerings and decided to discontinue offering new Personal and Portfolio line of credit accounts and close all existing accounts,” the bank said in the six-page letter. The move would let the bank focus on credit cards and personal loans, it said.

Wells Fargo CEO Charles Scharf has been forced to make difficult decisions during the coronavirus pandemic, offloading assets and deposits and stepping back from some products because of limitations imposed by the Federal Reserve. In 2018, the Fed barred Wells Fargo from growing its balance sheet until it fixes compliance shortcomings revealed by the bank’s fake accounts scandal.

 

[MichaelB]

Interesting development. More signs of an impending financial correction?

I have no idea if a financial correction is soon to appear, but I think this announcement is just another sign Wells Fargo is still struggling with regulatory issues and business practices.

 

[ExFlyBoy5]

I have no idea if a financial correction is soon to appear, but I think this announcement is just another sign Wells Fargo is still struggling with regulatory issues and business practices.

Quite true. The article did a good job of summarizing their "past issues."

 

[Montecfo]

Hard to draw major conclusions from this as they have exited other lines as well in trying to find a profitable mix among loan products driven their asset cap.

Now if a healthy bank was doing this it would get my attention.

 

[rodi]

I agree that things seem frothy. Which is why I rebalanced this week. Didn't take money off the table... but did move some money from my stock fund to my bond fund to rebalance to my asset allocation.

 

[OldShooter]

My guess is that the personal lines were less profitable than other lending, so to increase profit within an asset cap, those assets had to be jettisoned before the other lending could be increased.

The question, which even Wells can't know, is what effect this will have on the customers who are being cut off or put on repayment schedules. Apparently these were not among Wells' most profitable customers, so they are willing to take the risk of losing some.

 

[Dtail]

Hard to draw major conclusions from this as they have exited other lines as well in trying to find a profitable mix among loan products driven their asset cap.

Now if a healthy bank was doing this it would get my attention.

Agree.
As an aside, I worked with their CEO for a different company, although in a different dept. He always struck me as being quite smart.

 

[cyber888]

Wells Fargo has also suspend HELOC since last year 2020. I guess no more credit unless you have collateral.

 

[ExFlyBoy5]

Wells Fargo has also suspend HELOC since last year 2020. I guess no more credit unless you have collateral.

Except a HELOC has collateral?

 

[Bamaman]

They cancelled the personal lines of credit and overdraft credit lines a few years ago. I got mine reinstated.

It's nice not having to watch the checking account closely. Whenever mine would ever go in the credit line, I'd flip the funds from other accounts within a day or two.

Wells Fargo has had its fair share of bad publicity, especially in their investment division. Their interest rates are non-competitive for cars, etc. And go into my main Wells office in town, and there are over a dozen empty desks in the lobby and it's like a ghost town. The bankers are right out of college--inexperienced.

Only reason I've stayed with them is their checking account administration and bill pay services are really good.

 

[FlaGator]

Hard to draw major conclusions from this as they have exited other lines as well in trying to find a profitable mix among loan products driven their asset cap.

Now if a healthy bank was doing this it would get my attention.

My guess is that the personal lines were less profitable than other lending, so to increase profit within an asset cap, those assets had to be jettisoned before the other lending could be increased.

The question, which even Wells can't know, is what effect this will have on the customers who are being cut off or put on repayment schedules. Apparently these were not among Wells' most profitable customers, so they are willing to take the risk of losing some.

Probably right, and that's what their statement implies. But aren't unrecoverable losses a factor in profitability?

An alternate theory is those lines got hit hard over the last 15+ months, the write offs are higher than expected, and they don't expect that to improve.

As others have said, may be unique to Wells, but may not be. Better capitalized banks with more diverse income can bury those losses, but they are still there.

 

[WhenIsItTime]

They cancelled the personal lines of credit and overdraft credit lines a few years ago. I got mine reinstated.

It's nice not having to watch the checking account closely. Whenever mine would ever go in the credit line, I'd flip the funds from other accounts within a day or two.

Wells Fargo has had its fair share of bad publicity, especially in their investment division. Their interest rates are non-competitive for cars, etc. And go into my main Wells office in town, and there are over a dozen empty desks in the lobby and it's like a ghost town. The bankers are right out of college--inexperienced.

Only reason I've stayed with them is their checking account administration and bill pay services are really good.

With interest rates on savings so low, I park a good chunk of cash in my checking account to remove any chance of being overdrawn. No meaningful opportunity cost. It’s also a good way to monitor staff turnover in the “private client group”. Every time a newby sees my balance I get a phone call from them that I don’t answer.

 

[steelyman]

I got a call from WFC (Durham) yesterday out of the blue. I didn’t pick up and no voicemail left. I’ve had nothing to do with them although they have a presence around here.

I wonder if they’re trying to scare up new business? (no thanks)

 

[Montecfo]

Probably right, and that's what their statement implies. But aren't unrecoverable losses a factor in profitability?

An alternate theory is those lines got hit hard over the last 15+ months, the write offs are higher than expected, and they don't expect that to improve.

As others have said, may be unique to Wells, but may not be. Better capitalized banks with more diverse income can bury those losses, but they are still there.

Sure. But they also have a profit motive. I kind of doubt personal lines of credit have been driving big losses industrywide. WFC is a unique case in that they have exited several product lines, presumably tied to the asset cap.

Having said that, I plan to stay vigilant. But historically, bear markets do not begin during periods of expansive monetary policy.

And I am not trying to time the market, but always wish to inform my market view.

 

[OldShooter]

... An alternate theory is those lines got hit hard over the last 15+ months, the write offs are higher than expected, and they don't expect that to improve.

Sorry, I don't buy it. Your average hot dog stand on a public beach may have a 12 or 15 month planning horizon, but mature organizations like banks do not. If anything they move too slowly. Even if they did incur unusual losses as you speculate that would not cause them to abandon a product line that they have offered for decades with consequent decades of performance data.

... As others have said, may be unique to Wells, but may not be. Better capitalized banks with more diverse income can bury those losses, but they are still there.

Sorry again. Any top level corporate P&L is a compilation of data on many product lines, some of which are more lucrative than others. Nothing is "buried" or hidden. It is simply a matter of sensible data presentation. You can be sure that each product is continuously monitored by its financial and marketing managers, "helped" by levels of management above them. I seriously doubt that the bank has overall lost money on personal lines of credit, but it is entirely possible that the product margins are less than other products that the bank offers and they would like to increase on their balance sheet.

I would not be at all surprised to hear soon that Wells was increasing credit limits for their credit card customers. That is juicy business.

... WFC is a unique case in that they have exited several product lines, presumably tied to the asset cap. ...

Exactly. I would not extrapolate anything from Wells to the larger market, to other companies, or to the economy. Wells is really a unique lab rat where regulators are trying a new idea. Hopefully their experiment will not be fatal to the rat.

 

[ncbill]

WF didn't seem to be very competitive with this product either...one article I read said current interest rates started at 9.5% and went up from there.

 

[OldShooter]

WF didn't seem to be very competitive with this product either...one article I read said current interest rates started at 9.5% and went up from there.

Apparently a try for more profitability that didn't work. So, now, Plan B.

 

[youbet]

I agree that things seem frothy. Which is why I rebalanced this week. Didn't take money off the table... but did move some money from my stock fund to my bond fund to rebalance to my asset allocation.

This is an interesting way to look at things. I would look at selling an equity with a significant gain and using the proceeds to purchase a conservative bond fund as "taking money off the table." That is, moving assets from a higher risk / higher gain situation to a lower risk / lower gain situation would be "taking money off the table."

Just different ways of looking at things I guess.

 

[youbet]

Only reason I've stayed with them is their checking account administration and bill pay services are really good.

I wonder what this means?

To me, a checking account is a checking account. And I've never used a bill paying service that didn't work fine (although there's probably one out there someplace.) What distinguishes WF's and puts them above the rest?