Wells Fargo & Co. (NYSE:WFC) stock is little changed on Wednesday morning, as the company announced plans to scale back their auto lending division. The company, which was the second largest auto lender in the country less than a year ago, is reacting to the stress of the market.
Wells Fargo & Co. (NYSE:WFC) is also focusing on centralized risk controls to help reduce future risks within the company.
Auto sales have slowed in recent quarters, leading many manufacturers to lower their sales forecasts for the first time in years. Wells Fargo has reacted by cutting originations by 30% leading into March 31. The company is also consolidating their collections operations, which investors believe will lead to hundreds of jobs lost.
Industry experts have been predicting a cooling U.S. auto market since 2014 due to easy financing terms and low interest rates.
Lenders have also started to lend to borrowers with credit problems, leading to higher default rates in the industry and tighter market conditions. The tightening led to Wells Fargo reducing their subprime loans by 8% over the first quarter of the year.
Wells Fargo & Co. (NYSE:WFC) Earnings on Friday
Wells Fargo & Co. (NYSE:WFC) set to release their results on Friday, with investors expecting delinquency rates and default rates to rise.
“Wells Fargo is willing to give up volume and share in order to protect its balance sheet from credit risk,” states Franklin Codel, head of Wells Fargo consumer lending. Tim Sloan, the company’s Chief Executive Officer, stated that auto loans are the company’s biggest risk for a ‘negative credit event.’
Experian Automotive states that Wells Fargo has dropped to the seventh-largest loan originator from the second-largest less than a year prior.
The company has been tightening operations since the sales scandal last year. The lender is the third-largest in the country by assets.
The auto lending changes are said to be an attempt for the bank’s top management to seize greater control of operations.