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Wells Fargo CFO Predicts Higher Loan-Loss Provisions to Come

By Eric Volkman – Jun 12, 2020 at 5:32PM

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The bank will set aside even more money in anticipation of defaults this quarter than it did in the first.

Wells Fargo (WFC 4.71%) is continuing to feel the pain of the recession that was set off by the COVID-19 pandemic, and its financial performance for the current quarter will reflect that. In an investor conference, CFO John Shrewsberry warned that its loan-loss provisions would be higher in the second quarter than they were in the first quarter, during which efforts to stem the pandemic began to require many U.S. businesses to shut down.

In Q1, Wells Fargo boosted its loss provisioning by $3.1 billion, which drove its net profit down sharply -- to $0.01 per share, from the previous quarter's $0.60 per share.

Facade of a Wells Fargo branch.

Image source: Wells Fargo.

That was typical in the banking sector during that time; nearly every lender anticipates that loan defaults will soar because of coronavirus-related job losses and the economic slowdown. The need of most banks to prepare for those defaults led to them reporting significant declines in profitability, with some even booking net losses.

In his remarks, Shrewsberry did not provide an estimate as to how much the bank would devote to loss provisioning. Nor did he proffer guidance regarding the company's revenue or profitability for Q2. 

Wells Fargo is taking other measures to shore up its business amid the coronavirus pandemic, which remains a threat. For example, the bank has become more conservative about granting relatively high-risk loans such as home equity lines of credit.

"We anticipate greater collection activity, greater call volume, greater modification and working through individual credit situations with borrowers," he added.

In spite of this not necessarily positive news, Wells Fargo ended the week on an up note. Its shares rose by 4.4% on Friday, well exceeding the 1.3% gains of the S&P 500 index.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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