Wells Fargo swings to a massive loss as coronavirus crimps turnaround

The wheels are coming off The Stagecoach.

Wells Fargo swung to a big loss in the second quarter, forcing it to set aside billions of dollars to cover possible loan losses ahead as the coronavirus threw a wrench into its efforts to recover from a slew of scandals.

The third-biggest US lender posted a net loss of $2.4 billion for the second quarter on revenue of $17.8 billion. A year earlier, Wells had posted a profit of $6.2 billion. Wells’ loss per share of 66 cents was also much deeper than the 20 cents forecast by the Street.

In keeping with a broader industry theme, Wells forecast more pain to come in 2020, setting aside a massive $8.4 billion in loan loss reserves, signaling that it expects a wave of defaults in the second half of the year. Wells also cut its dividend to 10 cents from 51 cents.

“We are extremely disappointed in both our second-quarter results and our intent to reduce our dividend,” Wells Fargo CEO Charles Scharf said in a statement. “Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter.”

Scharf, who might be able to take some solace in his bank’s improved efficiency ratio, which measures how well it is managing its assets against its liabilities, fully joined the chorus of bank CEOs foreshadowing an ugly end to a terrible year.

Wells’ $8.4 billion in loan provisions was less than JPMorgan’s $10.5 billion, but more than Citigroup’s $5.6 billion. Nonetheless, the combined $24.5 billion disclosed on Tuesday morning alone sent the stock prices of all three banks into the red.

Wells Fargo led the group, however, with its shares recently off 6.7 percent at $23.72.