By
Godfrey Benjamin
April 17th, 2024
Wells Fargo expects to announce the new dividends when it will report quarterly earnings on July 14. The company’s previous quarterly common stock dividends were 51 cents per share.
American multinational financial services company Wells Fargo & Co (NYSE: WFC) warned that it will most possibly slash its dividends after the Federal Reserve stated it would cap dividends for banks based only on earnings.
Wall Street analysts hinted to Wells Fargo as a possible candidate to slash its dividend due to the announcement by the Bank of America Corporation (NYSE: BAC), Citigroup Inc (NYSE: C) last week, that came after the stress tests the Fed gives to major financial institutions.
The company’s previous quarterly common stock dividend was 51 cents per share. The bank also announced in its press release that it expects to announce the new dividend when it reports quarterly earnings on July 14. Shares of the bank fell 1.7% in extended trading.
Wells Fargo to Cut Dividends: Challenging Times Ahead
Charlie Scharf, the bank’s chief executive officer, stated that Wells Fargo expects to take another growth in the provision for loan losses that is “substantially higher” than last quarter’s increase. The rise of that provision will put downward pressure on the bank’s earnings.
He said:
“These are certainly extremely challenging times for many and we remain committed to supporting our customers and communities, and we will continue to take appropriate measures to maintain strong capital and liquidity levels and to improve the earnings capacity of the company.”
Shares of Wells Fargo fell 0.74% in the aftermarket after the announcement. On Friday, following the central bank’s decision, shares went down by 7.4%. And, maybe it is important to mention that stocks are down more than 50% year to date.
However, let us mention the Fed. Its move to cap dividends and ban buybacks went out of its stress tests of major financial firms, which this year added an extra thing for the economic scenarios involved to the coronavirus pandemic.
Also, the biggest banks said they intend to suspend their buybacks voluntarily earlier in the crisis. However, all of these banks were quite hesitant to decrease their dividend payments, which are viewed as a nice and secure source of income for investors. The industry was forced to slash dividends after the 2008 financial crisis, and the Fed did not allow banks to raise dividends until 2011.
Pointing to Retirees
Scharf, who came as CEO last October, was pointing to retirees as one group that backbones on dividends during a banking conference in May.
“The board recognizes the importance of dividends and just where those dividends go. Those dividends wind up in retirees’ hands, in savers’ hands. Those are the people that are investing either directly or through various funds, and it’s important, and so we understand that,” explained Scharf.
The point is that Wells Fargo has to go through other constraints that its peers do not, including an asset cap from the Fed that was imposed after a scandal involving fake accounts.
This exact asset cap was modified in April in order to allow the bank to optimize loans used in the coronavirus aid the federal government gave.
The bank’s fight in the last few years has impacted its stock price, therefore pushing the dividend yield higher.