Charles Scharf
Michael Nagle | Bloomberg | fake pictures
Wells Fargo released its first quarterly loss since the financial crisis on Tuesday, as the bank set aside $ 8.4 billion in reserves for credit losses linked to the coronavirus pandemic.
The bank had a net loss of $ 2.4 billion in the second quarter, or a loss of 66 cents a share, worse than the 20 cents per loss expected by analysts polled by Refinitiv. Revenue of $ 17.8 billion was also weaker than analysts’ estimate of $ 18.4 billion.
Shares of the San Francisco-based bank fell 4.1% in premarket operations.
Wells Fargo, the banking giant in battle, was widely expected to post a loss as it had telegraphed its need to set aside billions of dollars for impaired loans linked to the pandemic. The company is working under a dozen regulatory consent orders linked to its 2016 fake account scandal, including one from the Federal Reserve that limits its asset growth. This has made managing the bank difficult during the coronavirus crisis, and CEO Charlie Scharf strongly hinted last month that he would have to cut spending and jobs this year.
The bank’s bleak outlook for profit is one reason regulators forced it to cut its dividend from its previous level of 51 cents a share.
But on Tuesday the bank announced a new quarterly payment of 10 cents a share, a deeper than expected reduction in its dividend that may indicate the bank’s pessimism about next year.
Wells Fargo was the only bank among the six largest lenders in the United States that was forced to cut its dividends after the Federal Reserve’s annual stress test; everyone else maintains their quarterly payments.
The bank is also hampered by its structure: Unlike JPMorgan Chase or Citigroup, Wells Fargo lacks a sizeable Wall Street business division, and that business has been on fire this year amid growing volatility and Fed backing. without precedents. Record trading results helped JPMorgan beat expectations for the quarter.
Partly due to the Federal Reserve restriction, Wells Fargo has also pulled out of the automotive and mortgage market swaths, particularly on riskier products like giant home loans.
While bank stocks have rebounded from their March lows, they have underperformed the broader indices, which have been driven by the tech sector.
One factor keeping bank stocks low: Low interest rates have pressured net interest margin, a key measure of profitability in the banking sector. Industry loan books have also started to shrink, in part due to less use of credit cards and fear of increased defaults.
Correction: The initial holder incorrectly expressed the amount of the bank’s dividend cut.
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