Morgan Stanley has an Overweight rating and a $39 price target on shares of Wells Fargo & Co. WFC.
In a note to clients, Morgan Stanley writes, "WFC expects to retain profitability in mortgage banking despite all the changes taking place in the industry. Why? Originators have rationalized around highly regulated banks facing similar servicing requirements. Gross margins are higher as originators tow the line on pricing to offset higher costs (servicing, regulatory, litigation, etc). In addition, we think Wells has incremental expense flexibility vs. to peers as its CORE IT investment pays off.
Our PT declines $1 to $39 to reflect lower expected industry originations, and fewer buybacks for WFC as we now forecast an 8.5% 2012 Basel 3 common tier 1. This is partly offset by better expense management."
Shares of WFC lost 49 cents yesterday to close at $25.77, a loss of 1.87%.
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