Wells Fargo (NYSE:WFC) recently announced that it plans to lay off about 1,000 of its 48,000 home lending workers, which translates to more than 2% of the division's employees. This kind of news is usually a negative indicator, both for the company involved and overall economy. However, this time it's different.
Not all layoffs are bad
Clearly, there is no such thing as a "good" layoff. It's always unfortunate when people lose their jobs, regardless of the motivation behind the downsizing. However, not all layoffs indicate trouble within a company.
Wells Fargo isn't laying off these workers because it can't afford to pay them or is being forced to cut back. Rather, the company is laying off these workers because there aren't as many mortgage delinquencies and other problems to deal with. For the nation's top mortgage lender, this is a good problem to have.
According to a statement from the bank, over the past two years there has been a continued drop in delinquencies, and fewer customers need assistance to remain in their homes. The company's most recent earnings report showed the percentage of nonperforming mortgages has steadily declined over recent quarters. Furthermore, the net charge-off rate for first-lien consumer mortgages was just 0.13% during the fourth quarter, down significantly from 0.21% just six months prior.
These jobs should be made up for elsewhere
According to recent data, Wells Fargo employs nearly 265,000 people, so 1,000 jobs is not a huge number, relatively speaking. Plus, other Wells Fargo divisions are still growing rapidly, so I believe those 1,000 jobs will be replaced within the company sooner rather than later.
Specifically, Wells Fargo's other lending operations have thrived, particularly auto lending and credit cards. The bank originated $6.7 billion in auto loans during the fourth quarter of 2014, and has been very successful in growing its credit card business, particularly among retail banking customers. More than 41% of Wells Fargo's banking households had a credit card account with the bank as of the fourth quarter, up from 37% in the previous year.
Other areas of the company continue to grow as well. Wells Fargo expanded both its consumer and business checking businesses by more than 5% year over year, and business lending has been growing by double-digits. The wealth, brokerage, and retirement business has also been expanding nicely.
Of course, a company's need for employees depends on several factors, but it's safe to say that as long as Wells Fargo's business continues to expand in this fashion, so will its need for qualified employees.
Still room for improvement
Despite this upbeat news, there is still significant room for improvement in the U.S. housing market and in the overall economy. For example, according to the latest figures from Zillow, nearly 17% of U.S. homeowners have negative equity in their homes, meaning they owe more than the home is worth. Also, the overall residential mortgage delinquency rate is still about 6.6%. This is down dramatically from the peak of 11.3% in early 2010, but is still a long way from the 1% to 3% historical average range, according to data from the Federal Reserve.
The bottom line is that this latest news from Wells Fargo is a great indicator that our economic situation has improved notably over the past few years, but there is still a long way to go. If the improvement continues, more layoffs could be coming in occupations related to loan delinquencies, but this should be more than offset by the overall job creation in the banking industry that will come with higher consumer confidence.