April 14, 2020 / 12:15 PM / 4 months ago

Wells Fargo profit decimated as coronavirus-led loan defaults loom

(Reuters) - Wells Fargo & Co (WFC.N) eked out a first-quarter profit of one penny per share as the bank set aside nearly $4 billion to cover expected loan losses due to the coronavirus pandemic.

Banks were largely expected to take large blows to their earnings as they braced for consumers and companies being unable to pay their bills in the aftermath of the  COVID-19 outbreak which has shuttered businesses and put nearly 10 million people out of work.

But Wells Fargo is unique in contending with an unprecedented growth restriction on its balance sheet, which has limited its ability to make loans to corporate clients and customers looking for funds to help them through the crisis.

In 2018, the U.S. Federal Reserve restricted the bank’s balance sheet to $1.95 trillion until it can prove it has the risk management structures which led to the 2016 sales practices scandal. At the end of the quarter, the bank’s total assets were $1.98 trillion, above the level allowed by the Federal Reserve’s consent order, but the bank is managing its average asset level so that it remains in compliance.

“During these challenging times, we expect loan-to-deposit growth could continue but cannot provide guidance on the level of growth, and we’re actively working to create balance sheet capacity to help our customers,” said Chief Financial Officer John Shrewsberry.

The U.S. government has poured trillions of dollars into financial markets and launched stimulus programs to support the economy stalled by the lockdowns put in place to contain the pandemic, but unpaid bills are already piling up.

On a call with analysts, Chief Executive Charlie Scarf called the government actions “swift” and “impressive,” but added that the length of the shutdown will ultimately determine the severity of the economic blow.

Wells Fargo has already deferred roughly $2.8 billion of payments and $30 million worth of fee waivers, Scharf said.

The San Francisco-based bank set aside some $3.83 billion in credit loss provisions, up from $845 million a year earlier.

The bank also suspended its guidance for lending revenue for the year, and put its cost cutting initiatives on pause in light of the crisis, executives said.

Total loans rose 2% to $965 billion as an uptick in corporate loans outweighed a drop in consumer credit card balances and some mortgage loans being refinanced away.

Deposits rose 6% across both the consumer and commercial businesses.

Excluding the impact of the loan provisions, revenue from lending activities fell 8% to 11.3 billion. Fee income tumbled 31% to $6.4 billion due to lower mortgage, and card fees.

Overall earnings plummeted to $42 million, or 1 penny per share, from $5.51 billion, or $1.20 per share, a year earlier. Analysts had expected a profit of 33 cents per share, on average, according to Refinitiv data.

Total loans rose 2% to $865 billion as an uptick in corporate clients looking for funding to ride out the crisis outweighed a drop in consumer credit card balances and some mortgage loans being refinanced away.

Deposits rose 6% across both the consumer and commercial businesses.

Excluding the impact of the loan provisions revenue from lending activities fell 8% to 11.3 billion. Fee income tumbled 31% to $6.4 billion due to lower mortgage, and card fees.

Overall earnings plummeted to $42 million, or 1 penny per share, from $5.51 billion, or $1.20 per share, a year earlier. Analysts had expected a profit of 33 cents per share, on average, according to Refinitiv data.

(Graphic: Wells Fargo counts cost of sales scandals - here)

FILE PHOTO: Wells Fargo Bank branch is seen in New York City, U.S., March 17, 2020. REUTERS/Jeenah Moon/File Photo

(Interactive graphic on costs : here)

Reporting by Noor Zainab Hussain in Bengaluru and Imani Moise; in New York; Editing by Lauren Tara LaCapra and Nick Zieminski

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