Wells Fargo CFO Predicts Higher Loan Loss Allowances To Come
Wells fargo (NYSE: WFC) continues to feel the pain of the recession that was triggered by the COVID-19 pandemic, and its financial performance for the current quarter will reflect that. At an investor conference, CFO John Shrewsberry warned that his allowance for loan losses reportedly higher in the second quarter than in the first quarter, during which efforts to contain the pandemic began forcing many U.S. businesses to shut down.
In the first trimester Wells Fargo increased its provision for losses by $ 3.1 billion, which caused its net income to drop sharply – to $ 0.01 per share, down from $ 0.60 per share in the previous quarter.
It was typical in the banking sector during this time; almost all lenders predict that defaults will increase due to coronavirus-related job losses and the economic downturn. The need for most banks to prepare for these defaults has led them to report significant declines in their profitability, with some even recording net losses.
In its remarks, Shrewsberry did not provide an estimate of how much the bank would spend on loss provisioning. He also did not give any advice regarding the company’s second quarter earnings or profitability.
Wells Fargo is taking further steps to consolidate its business amid the coronavirus pandemic, which remains a threat. For example, the bank has become more cautious about granting relatively high risk loans such as home equity lines of credit.
“We anticipate greater collection activity, greater volume of appeals, greater modification and resolution of individual credit situations with borrowers,” he added.
Despite this not necessarily positive news, Wells Fargo ended the week on a positive note. Its shares rose 4.4% on Friday, well outpacing the 1.3% gains in the S&P 500 Index.
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