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Wells Fargo posted its first quarterly loss since the financial crisis on Tuesday when the bank deferred $ 8.4 billion in credit reserves related to the coronavirus pandemic.
The bank had a net loss of $ 2.4 billion in the second quarter, or a loss of $ 0.66 per share, worse than the 20 cent loss expected by refinitive analysts. Revenue of $ 17.8 billion was also weaker than analysts' estimates of $ 18.4 billion.
Wall Street expected the following:
Profit: A loss of 20 cents per share compared to a profit of $ 1.30 per share last year, according to the refinitive.
Revenue: $ 18.4 billion, a 15% decrease from a year earlier.
Net interest margin: 2.33% according to FactSet
Wells Fargo, the competitive banking giant, is expected to make a loss as it spends billions of dollars on acid loans related to the coronavirus pandemic.
This would be the first time since the financial crisis that the San Francisco-based lender posted a quarterly loss. The bleak earnings outlook is one of the reasons why the bank has been forced by regulators to lower its dividend from its previous level of 51 cents per share.
Wells Fargo was the only bank among the six largest US lenders forced to cut its dividend after the Federal Reserve's annual stress test. All others keep their quarterly payouts.
The company is working on a dozen regulatory approvals related to its fake account scandal in 2016, including one from the Fed that limits its asset growth. These hit the bank, and CEO Charlie Scharf hinted at a conference last month that he needed to cut jobs and cut costs.
Partly due to the Fed restriction, Wells Fargo has withdrawn from the mortgage and car markets, particularly for riskier products like jumbo home loans.
The bank is also affected by its structure: unlike JPMorgan Chase or Citigroup, Wells Fargo lacks a substantial trading division on Wall Street, and this deal has been on fire this year due to increasing volatility and unprecedented support from the Federal Reserve.
While bank stocks recovered from their lows in March, they lagged the broader indices supported by the roaring technology sector.
One factor that keeps bank stocks low: Low interest rates have put pressure on the net interest margin, a key measure of profitability in the banking sector. The credit books in the industry have also shrunk, partly due to lower credit card usage and fear of rising defaults
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