Wells Fargo posted a quarterly loss for the first time in over a decade on Tuesday as it set aside $8.4 billion in the second quarter to cover coming defaults on loans due to the coronavirus pandemic. The bank also cut its dividend to 10 cents per share from 51 cents per share.
The bank, the fourth-largest in the U.S., lost $2.4 billion in the second quarter, its first loss since 2008. That's down from a profit of $653 million in the first quarter. Lower interest meant net interest income was down $1.4 billion to $9.9 billion for the quarter, while more strength in the bank's trading and securities businesses led to an increase in non-interest income to $8 billion, up $1.6 billion.
Despite attempts from management to clamp down on expenses, non-interest expense shot up $1.5 billion in the second quarter to $14.6 billion. Bonus pay to frontline employees and other pandemic-related expenses helped drive expenses higher, offsetting declines in spending in areas like technology, travel, entertainment and advertising.
Shares fell roughly 7.3% to $23.56 in early trading. Chief Executive Officer Charlie Scharf said he was extremely disappointed in the results.
"While the negative impact of the pandemic is unprecedented and many of our business drivers were negatively impacted, our franchise should perform better, and we will make changes to improve our performance regardless of the operating environment," Scharf said in a statement.
Despite the loss, Scharf said that the bank's capital and liquidity are extremely strong.
The bank attributed the loss, the first of any major U.S. bank during the pandemic, in part to a worsening outlook on the length and depth of the current economic downturn.
Industries that were acutely hit by the pandemic, like the oil business and commercial real estate, drove much of the weakness in the bank's gigantic corporate lending book. 47% of the bank's past-due corporate loans were from the oil & gas industry alone in the second quarter. That industry makes up only 3% of the bank's outstanding commercial loans.
The bank has now set aside $12.4 billion in the past two quarters to financially prepare for the scores of businesses and consumers who will default on their loans because of the economic effects of the coronavirus. Much of the financial carnage has been delayed by a mammoth federal stimulus program that pumped money into the pockets of consumers and businesses.