Hey Wells Fargo, Can I Get a 2% Mortgage?
Hey Wells Fargo: can I get a 2 percent mortgage?
Wells Fargo beat by a penny on the topline; revenue was light. Let's be blunt: Wells Fargo is a crowded trade on the housing market. They are the biggest mortgage player in the U.S.
Here's the good news on Wells: Mortgage originations are up 6.1 percent quarter-over-quarter (but mortgage applications were down).
Here's the bad news: Margins were lower. Why? Partly, it's because everyone is refinancing their mortgages! I did ... replacing a 4.8 percent mortgage with a 3.5 percent mortgage. Great for me, but it reduces bank margins. They collect less interest.
Of course, they resell most of their mortgages to Fannie Mae or Freddie Mac . And here's another side of the story: They are making a lot of money selling those mortgages.
Why? Because the Federal Reserve is standing at a window buying almost everything. This is a sweet gig for the banks.
It's not such a sweet deal for the consumer. Here's what bugs me: I got a 3.5 percent mortgage. Sounds good, but the lender turns around and resells those mortgages ... and because the Fed is buying everything, the prices for these mortgage-backed securities is going way up.
So, instead of selling a 3.5 percent mortgage at, say, par of 100, they are selling for, say, 106, which is reducing the yield from 3.5 percent to about 2 percent.
Who pockets the profit between that 3.5 percent mortgage they sold me and the 2 percent they sold? Wells Fargo! Sweet gig!
Can I get a 2 percent mortgage? Apparently not!
1) Initial public offering strength continues: Workday (which will trade under the symbol "WDAY") prices 22.8 million shares at $28 apiece. Follow this: Initial price talk was $21 to $24, revised upward to $24 to $26, and prices at $28 and right now the indications are $48. Wow.
Amazing, considering it is not profitable after eight years, but revenue is increasing fast. It has said it is not going to be profitable any time soon.
Remember the theme: Investors will pay anything for growth. Of any sort.
But there's more going on here. For example: All the proceeds are going to the company. It is not paying off any debt — because it has no debt. (A clean balance sheet? Miracle!)
And the two people running the company give it a lot of credibility. Dave Duffield and Aneel Bhusri both founded PeopleSoft. They started Workday as soon as the sold PeopleSoft to Oracle in 2007.
Of course, it has the magic word: Cloud-based computing , this time for human resource needs (managing employee data, in plain English).
Two other IPOs: LinnCo (LNCO) priced 30.3 million shares at $36.50 each. Diamondback Energy (FANG) priced 12.5 million shares at $17.50, the range was $17 to $19.
2) A mixed week for global markets:
S&P 500 -1.9%
3) Advanced Micro Devices slides 8.4 percent pre-market after the chipmaker lowered its third-quarter revenue guidance , blaming weak demand across all of its major businesses. The company, which provides processors and graphic chips used in server and PCs, joins a deep list of peers grappling with lackluster personal-computer demand. AMD sees third-quarter revenue falling 10 percent sequentially, worse than its previous forecast of a one percent decline — give or take 3 percent. The company also slashed gross margin expectations to 31 percent from 44 percent.
—By CNBC's Bob Pisani; Follow Him on Twitter @BobPisani
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