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Wells Fargo Mulls to Cut Dividend in Q3 as Fed Limits Payouts

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Wells Fargo & Company WFC expects to announce a cut in its third-quarter dividend on Jul 14 along with the earnings release, following the Federal Reserve’s move to restrict payouts of large banks post stress test results. In the second quarter, the company paid out a dividend of 51 cents per share.

Fed has asked banks to maintain sufficient liquidity by suspending share repurchases for the third quarter. Also, it capped dividend payments in a way that the firms can either pay a dividend equal to the amount paid out in the second quarter or an amount equal to the average of the bank’s net income for the four preceding calendar quarters.

The cut in Wells Fargo’s dividend was more than likely as the lender’s earnings in the past few quarters have been hit by involvement in several litigations, thereby, raising legal costs.

Further, following the CCAR results, the company expects its stress capital buffer to be 2.5%, beginning October 2020. The stress capital buffer is the excess capital that the company must hold above its minimum capital requirements.


CEO Charlie Scharf said that it remains difficult to predict the impact on credit portfolio as there remains “great uncertainty in the path of the economic recovery”. Thus, in the second quarter, the company is likely to have realized higher allowance for credit losses compared with that in the first quarter of 2020.

He added, “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.”

Other major Wall Street firms such as JPMorgan Chase JPM, Citigroup C, Goldman Sachs GS, Bank of America and Morgan Stanley have maintained their current dividend levels for the third quarter of 2020.

Shares of Wells Fargo lost 52.2% year to date compared with 37% decline registered by the industry.

Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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