Wells Fargo Swings to First Loss in More Than a Decade -- 3rd Update

By Ben Eisen 

Wells Fargo & Co. posted its first quarterly loss in more than a decade and socked away nearly $10 billion to prepare for a wave of loan defaults.

The San Francisco-based bank lost $2.38 billion in the second quarter, compared with a profit of $6.21 billion a year earlier, as the novel coronavirus continued to pummel the economy. It was the bank's first loss since the fourth quarter of 2008 and just its third loss of this century.

The bank lost 66 cents per share. Analysts polled by FactSet had expected a loss of 16 cents.

Wells Fargo set aside $9.57 billion in the second quarter to cover potential loan losses on top of the $3.83 billion it set aside in the first quarter.

Revenue of $17.84 billion was down 17% from $21.58 billion a year earlier.

The lender has been hit hard by the economic collapse resulting from the coronavirus pandemic, which has forced many consumers and businesses to seek reprieve on their debt payments.

JPMorgan Chase & Co. and Citigroup Inc. also said Tuesday they had provisioned billions of dollars. But unlike Wells Fargo, they have large trading and investment banking operations that helped cushion the blow to profits.

Wells Fargo's provision for the second quarter includes $1.1 billion for charge-offs, and another $8.4 for future potential losses. The bank set aside the most in its commercial banking unit, where it expects losses to rise in its hotel, restaurant and retail portfolios.

It is also seeing higher charge-offs in its oil and gas and commercial real-estate portfolios. That unit provisioned $6.03 billion on top of the $2.29 billion it socked away in the first quarter.

The consumer-bank unit also provisioned $3.38 billion on top of the $1.72 billion in the prior quarter. The wealth and investment management unit set aside $257 million.

"Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter," Chief Executive Charles Scharf said in a statement.

Wells Fargo said it deferred more than 2.5 million loan payments for consumers and small businesses this year, amounting to more than $5 billion in principal and interest. It also deferred payments for 246,000 commercial customers, totaling $1.5 billion.

When the pandemic hit, Wells Fargo was already struggling to overcome a four-year-old fake-accounts scandal that has weighed on its business lines. Revenue in each of the bank's business units fell in the second quarter compared with a year earlier.

The bank brought in Mr. Scharf last fall to help improve its reputation and get businesses back on track. He has prioritized resolving outstanding regulatory issues and restructuring the business lines.

Bowing to the profit pressure, the bank also said it expects to cut its quarterly dividend to 10 cents from 51 cents. The Federal Reserve told banks last month that they couldn't pay out dividends in excess of their average profits over the last four quarters, causing Wells Fargo to say it would trim its dividend.

Wells Fargo's shares have fallen by more than half since the start of the year, by far the worst performance among the largest U.S. banks. They were down another 5.2% in Tuesday trading.

The bank has leaned heavily on cost cuts in recent years, but that has been hard to do during a pandemic that has created additional expenses. Expenses totaled $14.55 billion, up about 8% from $13.45 billion a year ago.

Executives have indicated that they plan to renew those efforts this year, including by cutting jobs. Mr. Scharf said on a call with analysts that he wants the bank to cut costs by $10 billion annually. He said it planned to start this year, but didn't commit to a time frame.

The bank's net interest income fell 18% from a year ago to $9.88 billion, while its noninterest income fell 16% to $7.96 billion.

Write to Ben Eisen at [e-mail]

(END) Dow Jones Newswires

July 14, 2020 14:59 ET (18:59 GMT)

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