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Wells Fargo to Cut Dividend While Other Big Banks Hold Payouts Steady

By Ben Eisen 

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.

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.

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 they collectively reduced their per-share payout since the second quarter of 2009, when banks 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.

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

Wells Fargo executives had not 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," he said.

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 four-year-old fake-account scandal 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's investors in recent months. The bank's shares have more than halved so far this year, putting in the worst performance of the six largest banks. The KBW Nasdaq Bank Index was down 36% in 2020 and the S&P 500 was down 5.5%.

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 ben.eisen@wsj.com

 

(END) Dow Jones Newswires

June 29, 2020 18:05 ET (22:05 GMT)

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