Wells Fargo reports $2.4 billion loss for the quarter, cutting dividend to 10 cents

Wells Fargo on Tuesday posted its first quarterly loss since the financial crisis as the bank set aside $8.4 billion in loan loss reserves tied to the coronavirus pandemic.

The bank had a net loss of $2.4 billion in the second quarter, or a loss of $0.66 a share, worse than the 20 cents a share loss expected by analysts surveyed by Refinitiv. Revenue of $17.8 billion was also weaker than analysts’ $18.4 billion estimate. 

Here’s what Wall Street expected:

Earnings: a loss of 20 cents a share, compared with earnings of $1.30 a share a year earlier, according to Refinitiv.

Revenue: $18.4 billion, a 15% decline from a year earlier.

Net interest margin: 2.33%, according to FactSet

Efficiency ratio: 72%

Wells Fargo, the embattled banking giant, is expected to post a loss as it sets aside billions of dollars for soured loans tied to the coronavirus pandemic.

That would be the first time the San Francisco-based lender has posted a quarterly loss since the financial crisis. The bleak outlook for profits is one reason the bank was forced by regulators to cut its dividend from its previous level of 51 cents a share.

Wells Fargo was the only bank among the six biggest U.S. lenders to be forced to cut its dividend after the annual Federal Reserve stress test; all the others are maintaining their quarterly payouts.

The company is laboring under a dozen regulatory consent orders tied to its 2016 fake accounts scandal, including one from the Fed that caps its asset growth. These have stung the bank, and CEO Charlie Scharf strongly hinted last month at a conference that he would have to eliminate jobs and cut expenses.

In part because of the Fed restriction, Wells Fargo has pulled back from swaths of the mortgage and auto market, particularly in riskier products like jumbo home loans.

The bank is also hamstrung by its structure: Unlike JPMorgan Chase or Citigroup, Wells Fargo lacks a sizable Wall Street trading division, and that business has been on fire this year amid surging volatility and unprecedented Federal Reserve support.

While bank stocks have rebounded from their March lows, they have underperformed the broader indices, which have been buoyed by the roaring technology sector.

One factor keeping bank stocks down: Low interest rates have pressured net interest margin, a key measure of profitability in the banking sector. The industry’s loan books have also begun to shrink, driven in part by lower credit-card usage and the fear of rising defaults

This story is developing. Please check back for updates.