Banking & Finance

Wells Fargo Earnings Catch a Bad Case of COVID-19

When Wells Fargo & Co. (NYSE: WFC) released its second-quarter earnings report before the opening bell on Tuesday, the megabank said that it had a net loss of $0.66 per share and $17.8 billion in revenue. The consensus estimates had called for a net loss of $0.20 per share and revenue of $18.4 billion. In the same period of last year, Wells Fargo said it had EPS of $1.30 and $21.6 billion in revenue.

During the latest quarter, average loans were $971.3 billion, up $23.8 billion from the second quarter of 2019. Period-end loan balances were $935.2 billion.

Commercial loans decreased $54.5 billion compared with the first quarter, predominantly due to a $54.9 billion decline in commercial and industrial loans driven by repayment of revolving lines that were drawn in March as a result of the pandemic. Consumer loans decreased $20.1 billion from the prior quarter driven by a $16.7 billion decrease in real estate.

Total average deposits for the quarter were $1.4 trillion, up $117.7 billion from the same period last year. Period-end deposits were $1.4 trillion, an increase of $34.2 billion from the first quarter. This was driven by growth in consumer deposits, partially offset by a decline in commercial deposits.

Book value per common share was $38.67, and tangible book value per share was $31.88.

The bank also announced that its new quarterly dividend would be $0.10 per share, a much deeper cut than originally expected by investors. The dividend was reduced from $0.51 per share.

For the second quarter, net interest income decreased $1.4 billion from the first quarter to $9.9 billion. At the same time, net interest margin was 2.25%, a decrease of 33 basis points from the prior quarter. These results were due to balance sheet repricing driven by the impact of the lower interest rate environment, and less favorable hedge ineffectiveness accounting results.

Wells Fargo stock traded down about 6% Tuesday morning, at $23.91 in a 52-week range of $22.00 to $54.75. The consensus price target is $29.54.

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