Wells Fargo's first quarter profits suffered as the bank set aside billions to gird for the effect the ongoing economic shutdown will have on the world economy.
The bank posted 1 cent of earnings per share for the first quarter, down from $1.20 per share during the same quarter last year. The bank is preparing for defaults from businesses and consumers affected by the novel coronavirus pandemic.
"We have entered into a world we have never seen before," CEO Charlie Scharf said on an earnings call. "There are many unknowns."
The San Francisco-based bank was one of the first banks to post earnings since COVID-19 effectively shut down much of the U.S. economy, with millions losing their jobs and thousands of businesses going to a standstill.
To prepare for coming credit losses, Wells set aside $3.1 billion in reserve, a similar action to what its peer JPMorgan disclosed earlier Tuesday.
Total revenue at Wells was $17.7 billion, down from $21.6 billion for the same quarter last year. Both loans and deposits grew for the quarter, as many businesses and consumers left riskier assets for cash as the market cratered.
Wells shares fell about 4% after the earnings were released to about $30 per share, with a selloff steepening when CFO John Shrewsberry said he was withdrawing a heavily-monitored guidance on net interest income.
Turnaround interrupted
The shutdown has complicated Scharf's effort to right the ship at the bank, which he took over late last year.
Embarking on a steady, gradual pace to remake the bank after its scandal-marred past, Scharf put in place a substantially new management team since his October start date. He also resolved many outstanding federal probes into the bank with a $3 billion settlement in February.
Yet, instead of a grind back to the top tiers of Wall Street, he will have to guide Wells Fargo through the coming recession.
Scharf's reviews of the bank's lines of business are being revised to focus on getting the company through the pandemic and economic recovery, he said, rather than the comprehensive review and revamp of the company he was hired to do.
"The real question is how long this shut down actually continues, which again, none of us know," Scharf said.
The bank has already pledged $175 million to help communities deal with the impact of the virus. It is also paying employees that it deems "front line" $200 more every other week, provided they made less than $100,000 a year. The bank closed 1,400 branches, over a quarter of the total branch footprint, while limiting hours at the rest.
As costumers avoid contact with others, the bank saw teller transactions shrink by about half in the final weeks of the quarter and mobile deposits rise by half in March, the last month of the quarter, versus the year prior.
Currently, 180,000 employees, or over two-thirds of the bank's workers, are working from home, Scharf said.
Bank employees, too, have been affected by the virus. Four employees in the bank's Customer Information Center, a massive corporate campus in north Charlotte, have tested positive for COVID-19, the disease caused by the coronavirus.
Scandal legacy
Amid the crisis, the bank still has to navigate the legacies of its sales scandals.
For over a decade, Wells created millions of accounts in customers' names without their consent, among other misconduct. It led to widespread censure of the bank from both regulators and the public.
Concerned that it would breach an asset ceiling it had to operate under as a punishment for the scandal from the Federal Reserve, Wells initially limited its participation in the Paycheck Protection Program, a $349 billion small-business federal stimulus program, to $10 billion.
Last Wednesday, the Fed eased that cap for loans in the federal program, on the condition that the bank not keep the fees it makes as profit. Disclosures in the bank's earnings showed just how close the bank came toward breaching the Fed's cap, which is set at $1.952 trillion.
At March 31, the end of the first quarter, Wells Fargo assets were $1.981 trillion. This didn't mean that bank has broken the agreement it signed with the Fed as a measure of average daily assets, one the Fed cares about, was below the cap.
But it meant that even before the PPP program began in April, Wells Fargo already had too much on its books. To get below the cap, the bank said it is reducing its securities financing and deposits from other financial institutions.
The bank has 27,000 employees in Charlotte, a legacy of the 2008 acquisition of Wachovia and the most of any city with the bank's offices.
