Wells Fargo to cut dividend while other big banks hold payouts steady

Federal Reserve releases stress test results

FOX Business’ Edward Lawrence says the Federal Reserve will suspend stock buybacks for banks and cap the dividends banks can give in the third quarter to the second quarter.

Wells Fargo & Co. said it expects to cut its dividend for the first time in more than a decade to preserve capital to weather the coronavirus pandemic.

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The fourth-largest U.S. bank by assets said Monday it would cut its dividend from the 51 cents it paid in each of the four most-recent quarters. The bank said it would announce its payout when it reports second-quarter earnings on July 14.

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The other big U.S. banks— JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley—said they intend to hold their dividends steady. Still, this would be the first time any of the major banks reduced its per-share payout since the second quarter of 2009, when they faced an existential threat from the housing crisis

Banks are in a much stronger position now than they were during the past financial crisis. But with the outlook highly uncertain because of the pandemic-induced economic collapse, the Federal Reserve asked banks last week not to increase their dividends. The central bank said that in a worst-case scenario in which the economy takes a long time to recover, banks could face as much as $700 billion in loan losses.

Ticker Security Last Change Change %
WFC WELLS FARGO & COMPANY 25.70 +0.36 +1.42%
JPM JP MORGAN CHASE & CO. 93.00 +0.41 +0.44%
C CITIGROUP INC. 50.29 +0.71 +1.43%
BAC BANK OF AMERICA CORP. 23.39 +0.24 +1.04%
GS GOLDMAN SACHS GROUP INC. 193.47 +4.28 +2.26%

The Fed also said last week that lenders couldn’t pay a dividend in excess of average quarterly earnings between the third period of last year and the second period of this year. As a result, some investors and analysts believed that Wells Fargo, whose earnings declined sharply to start the year, would have to cut its dividend.

FED CAPS BANK DIVIDENDS, SUSPENDS STOCK BUYBACKS IN 3Q STRESS TEST CORONAVIRUS PAUSE

Wells Fargo executives hadn’t committed to keeping the dividend intact, instead saying they would have to evaluate the Fed’s guidance and the bank’s own earnings power. The bank earned $653 million in the first quarter, down 89% from a year earlier. Chief Executive Charles Scharf has said earnings are expected to be similarly weak in the second quarter. In a statement Monday, he said he expects the bank will need to make a bigger increase in its allowance for credit losses than in the first quarter.

“There remains great uncertainty in the path of the economic recovery and though it’s difficult to accurately predict the ultimate impact on our credit portfolio, our economic assumptions have changed significantly since last quarter,” Mr. Scharf said.

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The biggest banks all posted lower profits in the first quarter, and they socked away billions of dollars to deal with soured loans. But Wells Fargo’s business lines were already struggling pre-pandemic; the bank’s fake-account scandal of four years ago has crimped revenue growth and forced it to lean on cost cutting.

The potential for a dividend cut has been a concern among Wells Fargo investors in recent months. The bank’s share price has more than halved in 2020, putting in the worst performance of the six largest banks. The KBW Nasdaq Bank Index was down 36% for the year and the S&P 500 was down 5.5%.

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The Federal Reserve also asked banks not to repurchase their own shares in the third quarter. Banks had previously committed to halting buybacks through the second quarter.

—Liz Hoffman contributed to this article.

Write to Ben Eisen at [email protected]

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