Wells Fargo Swings to First Loss in More Than a Decade -- 2nd Update
July 14 2020 - 09:20AM
Dow Jones News
By Ben Eisen
Wells Fargo & Co. posted its first quarterly loss in more
than a decade and socked away nearly $10 billion to prepare for a
wave of loan defaults.
The San Francisco-based bank lost $2.38 billion in the second
quarter, compared with a profit of $6.21 billion a year earlier, as
the novel coronavirus continued to pummel the economy. It was the
bank's first loss since the fourth quarter of 2008 and just its
third loss of this century.
The bank lost 66 cents per share. Analysts polled by FactSet had
expected a loss of 16 cents.
Wells Fargo set aside $9.57 billion in the second quarter to
cover potential loan losses on top of the $3.83 billion it set
aside in the first quarter.
Revenue of $17.84 billion was down 17% from $21.58 billion a
year earlier.
The lender has been hit hard by the economic collapse resulting
from the coronavirus pandemic, which has forced many consumers and
businesses to seek reprieve on their debt payments.
The bank set aside the most for potential loan losses in its
commercial banking unit, where it has exposures across a range of
hard-hit industries. That unit provisioned $6.03 billion on top of
the $2.29 billion it socked away in the first quarter. The
consumer-bank unit also provisioned $3.38 billion on top of the
$1.72 billion in the prior quarter. The wealth and investment
management unit set aside $257 million.
"Our view of the length and severity of the economic downturn
has deteriorated considerably from the assumptions used last
quarter," Chief Executive Charles Scharf said in a statement.
When the pandemic hit, Wells Fargo was already struggling to
overcome a four-year-old fake-accounts scandal that has weighed on
its business lines. Revenue in each of the bank's business units
fell in the second quarter compared with a year earlier.
The bank brought in Mr. Scharf last fall to help improve its
reputation and get businesses back on track. He has prioritized
resolving outstanding regulatory issues and restructuring the
business lines.
Bowing to the profit pressure, the bank also said it expects to
cut its quarterly dividend to 10 cents from 51 cents. The Federal
Reserve told banks last month that they couldn't pay out dividends
in excess of their average profits over the last four quarters,
causing Wells Fargo to say it would trim its dividend.
Wells Fargo's shares have fallen by more than half since the
start of the year, by far the worst performance among the largest
U.S. banks. They were down about 4% in premarket trading
Tuesday.
The bank has leaned heavily on cost cuts in recent years. While
that has been hard to do during a pandemic that has created
additional expenses, executives have indicated that they plan to
renew those efforts this year, including by cutting jobs. Chief
Financial Officer John Shrewsberry said last month that the bank
wants to get "our total head count to as lean a state as we can
responsibly operate."
Expenses totaled $14.55 billion in the second quarter, up about
8% from $13.45 billion a year ago.
The bank's net interest income fell 18% from a year ago to $9.88
billion, while its noninterest income fell 16% to $7.96
billion.
Write to Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
July 14, 2020 09:05 ET (13:05 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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