Wells Fargo (WFC) - Get Report announced it will cut its dividend, breaking rank with all of Wall Street’s other big banks, following the Federal Reserve’s move to set new restrictions on dividend payouts to shareholders.
The fourth-biggest U.S. bank by assets announced it plans to cut its dividend from the 51 cents it paid in each of the four most-recent quarters. The bank said it would announce its payout when it reports second-quarter earnings on July 14.
The move marks the first time since the financial crisis that a major U.S. bank has slashed its quarterly reward to shareholders, though it also comes as the Fed literally backstops banks and other lenders with almost free money to keep cash flowing through the economy amid the coronavirus pandemic and ensuing economic collapse.
“There remains great uncertainty in the path of the economic recovery and though it’s difficult to accurately predict the ultimate impact on our credit portfolio, our economic assumptions have changed significantly since last quarter,” said Wells Fargo CEO Charlie Scharf.
The other big U.S. banks - JPMorgan Chase (JPM) - Get Report, Citigroup (C) - Get Report, Bank of America (BAC) - Get Report, Goldman Sachs (GS) - Get Report and Morgan Stanley (MS) - Get Report - have said they intend to hold their dividends steady.
In releasing the results of its annual stress test on the industry last week, the Fed capped dividends at the largest 33 banks at current levels. The central bank said it might conduct another exam using a harsher economic scenario later this year, limiting firms’ ability to gauge prospects for dividends for the rest of the year.
A partial reason: With so much capital being literally guaranteed by the nation’s central bank, both it and other market participants are looking to restrict how much capital banks distribute back out to stockholders at a time when economic recovery remains opaque.
The Fed also wants to ensure banks continue to preserve their own cash in the event the financial system comes under additional strain. Fed officials added a new “sensitivity analysis” to their review that looks to capture how well firms are prepared to handle financial pressure caused by the Covid-19 pandemic.
The Fed has also told companies they can’t resume buybacks, which were suspended in March to preserve capital as the pandemic was spreading.
RBC Capital analyst Gerard Cassidy was first out of the gate on Tuesday to lower his forecast for Wells Fargo, dropping his one-year price target to $29 from $35, though holding his underperform rating on the shares.
Shares of Wells Fargo were down 1.21% at $25.39 in trading on Tuesday. The stock is down some 52% year to date.