The massive dividend cut that came with the Wells Fargo (NYSE:WFC) second-quarter earnings report shook out income investors. Yet this is expected. And so are the higher credit loss provisions.
Wells Fargo added $8.4 billion to the allowance for credit losses. Net interest income fell 13% sequentially because of lower rates. It wrote down $531 million in its mortgage servicing rights, too. The good news is that its CET1 ratio rose to 10.9%, up from 10.7% last quarter.
The sharp cut in dividends, to 10 cents a share, is within the Fed’s authorization. It allowed banks to pay dividends not exceeding the average of the bank’s net income for the last four quarters.
Outlook
Wells Fargo may form a base from these levels as the market prices in a steady recovery in the economy. The virus outbreaks threaten to lead to another shutdown in the U.S. But this draconian measure failed the last time.
This time, the U.S. will find a way to keep low-risk activities open while enforcing stricter health measures to stop the spread of the coronavirus.
WFC stock may hold the $25 level provided the stock market does not sell off. If panic accelerates, then investors will have another chance to get the stock at the $22 low.
