When Wells Fargo & Co. (NYSE: WFC | WFC Price Prediction) reported first-quarter fiscal 2020 results before markets opened Tuesday morning, the banking giant posted diluted earnings per share (EPS) of $0.01 on revenue of $17.7 billion. In the same period a year ago, the bank said it had EPS of $1.20 on revenue of $21.6 billion. Net income tumbled 89% from $5.9 billion a year ago to $653 million in the quarter. First-quarter results compare to the consensus estimates for EPS of $0.33 on revenue of $19.35 billion.
Net income included a $0.56 per share charge to build a cash reserve of $3.1 billion and an impairment charge of $0.17 per share that the bank said was the result of economic and market conditions. Net interest income for the quarter totaled $11.3 billion, down 8% from the year-ago total of $12.3 billion.
Non-interest income fell from $9.3 billion last year to $6.4 billion, a decline of 31%. Wells Fargo attributed the decline to a decline in market-sensitive revenues (trading activities, debt securities, and equity securities), mortgage banking and credit card fees. Card fees fell to $892 million, down by $128 million sequentially. Mortgage banking fees fell sequentially from $783 million to $379 million.
Market sensitive revenue fell from a gain of $574 million in the fourth quarter to a negative $1.1 billion in the first quarter, primarily the result of $857 million in lower compensation plan investments and an impairment charge of $811 million related to venture capital and private equity partnerships and the bank’s wholesale business.
CEO Charlie Scharf commented:
We have taken comprehensive steps to help customers, employees and communities. For our customers, we’ve suspended residential property foreclosure sales, offered fee waivers, and provided payment deferrals, among other actions. For example, starting in early March and continuing into last week, we helped more than 1.3 million consumer and small business customers by deferring and waiving fees. This included deferring more than 1 million payments and providing over 900,000 fee waivers. We were also there for our commercial clients, who utilized over $80 billion of their loan commitments in March alone.
[nativounit]
At the end of March, the bank’s allowance for credit losses totaled $12.0 billion, up by 13.3% sequentially. Wells Fargo added $2.9 billion to its reserve to cover loan losses, partially offset by a decline of $1.3 billion in the allowance due to the adoption of the current expected credit loss accounting standard.
Wells Fargo offered no second-quarter guidance, but the consensus analysts’ forecast for EPS is $0.49 on revenues of $19.0 billion. For the fiscal year, analysts are looking for EPS of $2.10 on revenues of $76.28 billion.
Shares traded up about 2.1% at the opening bell but then slipped to a loss of around 5.4% to trade at $29.72. The stock’s 52-week range is $25.11 to $54.75, and the consensus 12-month price target is $34.62.
Under a restriction imposed by the Federal Reserve, Wells Fargo’s assets are limited to their level at the end of 2017. The restriction was temporarily lifted last week to enable the bank to expand its lending to small businesses under the $2.2 trillion CARES Act.
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