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Why Wells Fargo Stock Dropped Today

By Joe Tenebruso – Jul 14, 2020 at 6:50PM

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The struggling bank continues to disappoint investors.

What happened

Shares of Wells Fargo (WFC 1.55%) fell 4.6% on Tuesday, following the release of the financial services company's second-quarter results. 

So what

Wells Fargo's Q2 report was underwhelming, to say the least. The bank's revenue plunged 18%, to $17.8 billion, in part because of losses related to the coronavirus pandemic. That fell short of Wall Street's expectations. Analysts had expected revenue of $18.4 billion. 

A person in a business suit is holding a tablet displaying downwardly sloping digital charts.

The COVID-19 crisis and corresponding economic downturn are weighing heavily on Wells Fargo's business. Image source: Getty Images.

Wells Fargo also generated a net loss of $2.4 billion, or $0.66 per share. That was far worse than the $0.20 loss analysts forecast. 

Now what

Worse still, management believes more losses lie ahead. "Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter, which drove the $8.4 billion addition to our credit loss reserve in the second quarter," CEO Charlie Scharf said in a press release.

The prospect of mounting losses prompted Wells Fargo to slash its quarterly dividend, from $0.51 to $0.10 per share. "We are extremely disappointed in both our second-quarter results and our intent to reduce our dividend," Scharf said.

To right the ship, Scharf promised to improve Wells Fargo's operations in the quarters ahead. "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," he said.

Joe Tenebruso 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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