Banking stock under pressure: Wells Fargo & Co (NYSE: WFC)

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Wells Fargo & Co (NYSE: WFC) stock lost over 5.8% on 14th July, 2020 (as of 11:07 am GMT-4; Source: Google finance) as the bank’s second quarter of 2020 results disappointed as compared to its peers like JP Morgan. Wells Fargo reported a Revenue loss to $17.8 billion during the second quarter of 202 as compared to $21.6 billion in prior corresponding period. Net interest income fell $2.2 billion to $9.9 billion, while Noninterest income fell $1.5 billion to $8.0 billion during the quarter. Wells Fargo cut its third quarter 2020 dividend to $0.10 per share from $0.51 per share. Nonperforming assets rose 22% yoy to $1.4 billion, during the second quarter of 2020 as compared to first quarter 2020 to $7.8 billion. The firm added $8.4 billion to credit loss reserve during the second quarter of 2020 due to pandemic impact.

The group’s Average loans rose $23.8 billion, or 3% yoy, to $971.3 billion, during the second quarter of 2020 with period-end loans falling $74.7 billion, or 7% yoy to $935.2 billion. The Average deposits rose $117.7 billion, or 9% yoy to $1.4 trillion, during the second quarter of 2020 while period-end deposits rising $34.2 billion, or 2% to $1.4 trillion, against the prior corresponding quarter.

The group’s Credit quality took a solid hit due to the current ongoing pandemic with Net charge-offs rising $462 million to $1.1 billion, while Net loan charge-offs of 0.46% of average loans (annualized), rising from 0.28%, The rise in the allowance for credit losses of $8.4 billion comprised a $6.4 billion increase for commercial loans, mainly in the commercial real estate and commercial and industrial portfolios, and a $2.0 billion rise for consumer loans, mainly in the residential real estate portfolio. On the other side, the liquidity position was decent with Liquidity coverage ratio1 (LCR) of 129%, which continued to exceed the regulatory minimum of 100%.  Common Equity Tier 1 (CET1) ratio rose to 10.9% as compared to 10.7% in first quarter 2020.

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