Wells Fargo slides 8% after CFO warns more profits will be diverted to loan-loss provisions
- Wells Fargo stock slumped as much as 8.3% on Wednesday after the firm's chief financial officer warned it will divert more profits to loan-loss reserves in the second quarter.
- Net interest income will slide 11% year-over-year in the second quarter due to historically low rates, CFO John Shrewsberry added at a conference.
- Major lenders bolstered their reserves through the first quarter amid heightened default risk.
- Wells Fargo's provisions soared to $3.8 billion in the first quarter from $845 million in the year-ago period. The diversion of profits to defensive reserves fueled a 90% year-over-year decline in earnings.
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Wells Fargo shares tanked as much as 8.3% on Wednesday after the bank's chief financial officer said loan-loss provisions will increase in the second quarter and bite into profits.
Reserves to protect against heightened risk of default will "be bigger than the first quarter," John Shrewsberry told investors at a conference, citing historic unemployment and dire gross-domestic-product forecasts for the defensive move. The firm's provisions spiked to $3.8 billion in the first quarter from $835 million in the year-ago period, leading earnings to slide 90%.
"The severity of the economic forecast is a big part of it, but we will be providing more in the second quarter to make sure that ... we've got full coverage for the losses that we can imagine," Shrewsberry said, according to a transcript provided by Sentieo.
One of Wells Fargo's key revenue streams is also set to dry up in the current quarter, the finance chief warned. Shrewsberry said he sees net interest income plunging 11% or more year-over-year due to historically low rates. Deposit costs should steadily fall due to low rates and benefit the firm later in 2020, he added.
Nearly all major lenders saw profits dive in the first quarter due to bolstered loan-loss reserves, but not all firms share Wells Fargo's gloomy forward guidance. JPMorgan's consumer-credit health has "meaningfully" improved in recent weeks, Gordon Smith, the bank's co-president said. Morgan Stanley CEO James Gorman expects his firm to set aside less cash for bad loans compared to the first quarter, Bloomberg first reported.
Wells Fargo traded at $30.50 per share as of 1:50 p.m. ET, down 43% year-to-date.
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