NEW YORK (Reuters) - A decade on big U.S. banks are still running down and selling off crisis-era mortgages, a process executives point to as weighing on loan growth.
Eager to see a turning point in loan books, analysts count these portfolios as one factor, along with home equity loan runoff and new mortgage demand, to watch for when deciphering the true loan growth picture as U.S. second-quarter bank earnings start on Friday.
Wells Fargo & Co and Bank of America Corp executives have flagged portfolios from prior to the 2008-2009 crisis era where banks are no longer originating similar new products when they are asked to predict a turning point in consumer loans.
“These are portfolios of a bygone era that were very, very painful for the banks,” said Gerard Cassidy, bank analyst with RBC Capital Markets. “They are not plain vanilla portfolios, which means they are more costly to manage. It may just not be worth the headache.”
Analysts have said higher loan growth is critical to driving bank’s stock prices, but they anticipate only a modest acceleration year over year, driven primarily by commercial and industrial loans, not residential.
“Remember that there’s a portion of that book that, again, is pre-crisis,” Chief Executive Tim Sloan said about Wells Fargo’s mortgage book at a May conference. He added the bank continues to examine the older portfolio’s risk-return tradeoff and sells assets when the opportunity arises, factors “that could have some impact” on growth.
Wells Fargo owns around $23 billion of “Pick-A-Pay loans it picked up by...