Fourth largest bank in the U.S Wells Fargo & Co (WFC) has reported its first quarter results for the period ended 31 March. According to the results it’s clearly evident that coronavirus pandemic has greatly affected performance of the company in the quarter.
Profit for the bank in the quarter sharply decreased to $42 million or 1 cent per share, a value far way lower than the $5.51 billion or $1.20 per share the bank posted a similar period a year earlier.
Analysts had earlier estimated profit for the company at 33 cents per share. However due to the huge difference between reported and estimated profit it’s not clear whether there is any basis how the two can be compared.
The bank’s revenue for the quarter dropped to $17.7 billion denoting an 18% decline. Mortgage banking income for Wells Fargo in the quarter was $379 million, also another sharp drop in comparison with $783 million the bank registered in the previous quarter.
Back in 2016, Wells Fargo was engaged in a court case concerning sales scandal, the cases resolved by the bank ordered to pay damages totaling to in excess of $7 billion after admitting that its employees had opened millions of fake accounts.
The bank was also slapped with several restrictions by the regulator, these restrictions have been making it hard for the bank to loan money to its borrowers especially during this period when they need loans to cushion the coronavirus pandemic.
This demand in borrowing caused by coronavirus pandemic has been mounting pressure on the bank’s financials considering the bank is under specific restrictions emanating from the 2016 sales scandals.
The government of United States has injected cash in the country’s banking industry and the larger financial markets to cushion for plunge which is being caused by coronavirus situation.
Additionally, some cash was also set aside to be distributed to households in the U.S. Nonetheless, the households are yet to receive the package since the cash is yet to be disbursed. These households are left with no alternative rather than borrowing from the financial institutions.
This leaves the banks at a situation where they have increasing numbers of non-performing or unpaid loans. Citing a new accounting rule, banks are supposed to foresee losses emanating from non-performing loans and reserve the cash.
This rule has prompted Wells Fargo to set aside $3.83 billion in credit loss provisions, an amount higher than the $845 million the bank set aside last year for the same purpose.
“Our results were impacted by a $3.1 billion reserve build, which reflected the expected impact these unprecedented times could have on our customers,” said the CFO of the bank, John Shrewsberry.