Wells Fargo Dips on Forecast for Higher Loan-Loss Provisions
Wells Fargo Tumbles on Worsening Forecast for Interest Income
(Bloomberg) -- Wells Fargo & Co. shares fell as much as 8.3% after the bank’s chief financial officer predicted higher loan-loss provisions in the current quarter and a sharp drop in interest income this year.
Net interest income will decline more than 11% this year after the Federal Reserve slashed rates, CFO John Shrewsberry said at an investor conference Wednesday. He also said the bank will set aside more for bad loans this quarter than the first quarter’s $4 billion.
The reserve build will “be bigger than the first quarter,” Shrewsberry said at Morgan Stanley’s Virtual U.S. Financials Conference, citing the change in forecasts for unemployment, gross domestic product and other factors. “Not clear exactly how much bigger, but my expectation is that it will be bigger.”
The provision forecast differed from the optimism expressed by other bank leaders this week. Morgan Stanley Chief Executive Officer James Gorman said Tuesday his firm would post a smaller loan-loss provision than in the first quarter, while Gordon Smith, co-president of JPMorgan Chase & Co., said consumer-credit performance has been “meaningfully better” that what he would’ve expected given recent unemployment rates.
Wells Fargo’s shares slid 6.3% to $30.59 at 10:40 a.m. in New York, the worst performance in the 24-company KBW Bank Index. The lender’s stock is down 43% this year.
The bank in February had forecast a net interest income drop in the mid-single digits, and declined to provide a prediction when it reported first-quarter earnings in April.
Also on Wednesday, U.S. Bancorp executives predicted higher loan-loss reserves this quarter compared with the first three months of the year. The company’s shares slumped as much as 5.1%.
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