Wells Fargo shares fell nearly 5% on Tuesday after the beleaguered bank reported a larger-than-expected quarterly loss and said it would slash its dividend.
The poor second-quarter results “were driven by soaring expenses linked to Wells Fargo’s scandals and surging credit costs caused by the bank’s darkening economic view,” CNN said. “Wells Fargo also doesn’t have as much exposure to booming markets that have padded the bottom lines of some of its rivals.”
For the three months ended June 30, Wells Fargo suffered a loss of $2.4 billion, or 66 cents per share, a sharp reversal from the $6.2 billion, or $1.30 per share, that the lender earned a year ago. Analysts expected a loss of 20 cents a share.
The bank also intends to reduce its dividend from 51 cents to 10 cents, subject to board approval.
“We are extremely disappointed in both our second-quarter results and our intent to reduce our dividend,” CEO Charlie Scharf said in a news release.
“While the negative impact of the [COVID-19] pandemic is unprecedented and many of our business drivers were negatively impacted, our franchise should perform better, and we will make changes to improve our performance regardless of the operating environment,” he added.
Wells Fargo added $8.4 billion to its credit loss reserve in the second quarter in response to the pandemic but Scharf said the bank’s “view of the length and severity of the economic downturn has deteriorated considerably” and it was critical to protect “our capital position if economic conditions were to further deteriorate.”
In trading Tuesday, Wells Fargo shares fell 4.9% to $24.18. The stock has lost more than half of its value so far this year, compared with 34% for Wells Fargo’s peers.
According to Edward Jones, the provision for bad loans in the second quarter was the largest in Wells Fargo’s history, topping even the fourth quarter of 2008.
“This will be the toughest quarter for the banking industry since the financial crisis in 2008, and Wells results will be the worst of the bunch,” Kyle Sanders, analyst at Edward Jones, said in a client note.
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