Market Overview

Here's Why Wells Fargo Could Suspend Its Dividend

Here's Why Wells Fargo Could Suspend Its Dividend

Big bank earnings are right around the corner, and Wells Fargo & Co (NYSE: WFC) is expected to report a small loss in the second quarter on Tuesday morning.

On Monday, one Wall Street analyst said a surprising requirement by the Federal Reserve could put Wells Fargo’s dividend at risk.

The Analyst: Bank of America analyst Erika Najarian reiterated her Neutral rating and $29 price target for Wells Fargo.

The Thesis: The Federal Reserve recently implemented a surprising income test for banks to gain approval for their dividend plans. The requirement states that common stock dividends can’t exceed the average GAAP net income for the previous four quarters.

Najarian said Wells Fargo’s dividend “capacity” under the new rule will dip into negative territory by the fourth quarter of 2020.

“Consensus implies a ‘trough’ dividend capacity of 23c, but the primary difference here is we project $21bn in provision at WFC to cover 2.2% in cumulative two-year credit losses, vs. consensus of $14bn,” Najarian wrote in a note.

At this point, it’s unclear if the Fed will extend its new dividend rule beyond the third quarter. However, she said the market clearly seems to be pricing in a dividend cut from 51 cents per quarter to just 15 cents. Wells Fargo may be forced to either make a more aggressive cut or consider the possibility of two cuts in succession if the rule is extended.

Bank of America is forecasting a full-year 2020 GAAP EPS loss of 20 cents for Wells Fargo.

Benzinga’s Take: Wells Fargo will likely want to do whatever it can to avoid making a negative headline into two negative headlines by being forced to make two dividend cuts this year. At the same time, the company may be able to take advantage of come clever accounting to get it through its rough patch this year and avoid being forced to make additional dividend cuts.

Do you agree with this take? Email with your thoughts.

Related Links:

Could Collateralized Loan Obligations Trigger The Next Financial Crisis?

What Does A 'Second Wave' Of COVID-19 Mean For Investors?

Latest Ratings for WFC

Sep 2020Wolfe ResearchUpgradesPeer PerformOutperform
Sep 2020UBSUpgradesSellNeutral
Sep 2020Morgan StanleyMaintainsEqual-Weight

View More Analyst Ratings for WFC
View the Latest Analyst Ratings


Related Articles (WFC)

View Comments and Join the Discussion!

Posted-In: Bank of America Erika NajarianAnalyst Color Dividends Price Target Analyst Ratings Trading Ideas Best of Benzinga

Latest Ratings

JBLRBC CapitalMaintains38.0
COSTRBC CapitalMaintains412.0
COSTMKM PartnersMaintains325.0
MTNTruist SecuritiesMaintains243.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at