Wells Fargo slashed its dividend by 80 per cent after a sharp increase in charges for loan losses and lower interest rates knocked the lender to its first quarterly loss since the depths of the financial crisis.
The bank took a charge of $9.5bn in the three months to June as it increased its provisions for soured loans and wrote down the value of others. The large provision for credit losses pushed the bank to a loss of $2.4bn, compared with a profit of $6.2bn in the second quarter of 2019.
“We are extremely disappointed in both our second-quarter results and our intent to reduce our dividend,” said Charles Scharf, Wells’ chief executive.
“Our view of the length and severity of the economic downturn has deteriorated considerably . . . [but] our franchise should perform better, and we will make changes to improve our performance,” he added.
The group, among America’s biggest lenders, cut its quarterly dividend from $0.51 to $0.10 per share, its first reduction since the financial crisis. It was forced to do so because of new rules from the Federal Reserve capping dividends at recent earnings.
The lender’s results were also hit by falling interest rates, after the Federal Reserve took aggressive action to limit the economic damage of the coronavirus pandemic. Net interest income for the quarter was $9.9bn, 18 per cent lower than the year before.
Revenue, at $17.8bn, missed analysts’ expectations of $18.5bn. It posted a loss per share of 66 cents, much worse than the break even quarter analysts had expected.
Wells shares have fallen 53 per cent since the coronavirus first hit markets in February. Shares fell an additional 5 per cent in pre-market trading.