Wells Fargo Swings to $2.4 Billion Loss and Slashes Dividend

Wells Fargo posts a deeper-than-expected second-quarter loss and slashes its dividend by a wider-than-expected margin as the coronavirus pandemic slams earnings.
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Wells Fargo  (WFC) - Get Report on Tuesday posted a deeper-than-expected second-quarter loss and slashed its dividend by a wider-than-expected margin as the coronavirus pandemic continued to slam the bank's earnings and profit outlook. 

The San Francisco-based bank reported a net loss of $2.4 billion, or 66 cents a share, for the second quarter, vs. income of $6.2 billion, or $1.30 a share, in the comparable year-earlier quarter. Analysts polled by FactSet had been looking for a loss of 16 cents a share.

Revenue came in at $17.8 billion, down from $21.6 billion in the second quarter of 2019. Net interest income was $9.88 billion, down $2.2 billion on year, while non-interest income was $8 billion, down $1.5 billion. Average deposits rang in at $1.4 trillion, up $117.7 billion, or 9%, from a year earlier.

Meantime, the fourth-biggest U.S. bank by assets stashed away close to $10 billion in preparation for what it anticipates will be a wave of loan defaults.

It also confirmed plans to cut its dividend to 10 cents a share from the 51 cents it paid in each of the four most-recent quarters, though the cut was more than Wall Street had been expecting. 

“We are extremely disappointed in both our second quarter results and our intent to reduce our dividend," CEO Charlie Scharf said in a statement, adding that the bank's view of the length and severity of the economic downturn has "deteriorated considerably" from the assumptions used last quarter. 

Wells Fargo announced at the end of June that it planned to 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 move marks the first time since the 2008-2009 financial crisis that a major U.S. bank has slashed its quarterly reward to shareholders.

On the brighter side, Wells Fargo did dole out more loans, at least on average. 

Average loans were $971.3 billion in the second quarter, up $6.2 billion from the first quarter, the company said, while period-end loan balances were $935.2 billion as of June 30, down $74.7 billion from March 31. 

Commercial loans, meantime, were down $54.5 billion compared with March 31, "predominantly due to a $54.9 billion decline in commercial and industrial loans driven by repayment of revolving lines that were drawn in March at the outset of the Covid-19 pandemic," the company said. 

Consumer loans fell $20.1 billion from the prior quarter, driven by a $16.7 billion decrease in real estate and junior lien mortgage loans, "as originations and draws of existing lines were more than offset by paydowns and a reclassification of $10.4 billion in loans held on its books, as well as a $2.6 billion drop in credit card loans.

But it still beefed up its war chest in anticipation of a wave of defaults.

The bank set aside $6.03 billion for potential loan losses in its commercial banking unit and another $3.38 billion for potential losses in its consumer-bank unit. The wealth and investment management unit set aside $257 million, the company said.

Shares of Wells Fargo were down 6.77% at $23.69 in trading on Tuesday.