Wells Fargo wealth profit plummets 70% in ‘extremely' disappointing quarter
Coronavirus fallout and economic upheaval took a toll on Wells Fargo’s wealth management business.
Wealth management net income fell 70% year-over-year to land at $180 million for the second quarter, the company said.
It’s a sign of potentially challenging times for wealth managers, some of whom reported similar declines this week. JPMorgan Chase said net income for its Asset & Wealth Management business fell 8% to $658 million. First Republic said wealth management revenue of $113.9 million for the second quarter, down 5.3%.
Morgan Stanley and Bank of America, which owns Merrill Lynch, report earnings later this week.
To be sure, Wells Fargo faces a few challenges unique to its business, namely attrition in its advisor ranks. Then an economic downturn, spurred on by the coronavirus, buffeted the firm during the recent quarter.
Net interest income dropped 29% to $736 million, due to the lower interest rate environment. Client assets, at $1.8 trillion, were down 4%, according to the bank’s earnings report issued July 14.
The wealth unit said it set aside $257 million as a provision for credit losses, which the firm said was “driven by current and forecasted economic conditions due to the COVID-19 pandemic.” Overall, the company increased its credit loss reserve by $8.4 billion.
Despite aggressive recruiting efforts that have netted the wirehouse a slew of new hires, advisor headcount fell to 13,298 from 13,799 for the same period a year ago. The company reported having 13,450 brokers at the end of the first quarter. Wells Fargo operates several advisory businesses, including a wirehouse, private bank and independent broker-dealer.
There were few bright spots elsewhere for Wells Fargo, which reported a companywide net loss for the quarter of $2.4 billion. It also cut its dividend to 10 cents per share from 51 cents — below what analysts were expecting (Keefe, Bruyette & Woods forecasted a cut to 20 cents).
Chief Executive Officer Charlie Scharf said in a statement that he was “extremely disappointed” in the second quarter results.
Analysts agreed. “Overall there were not many positive data points to hang your hat on,” analysts for Keefe, Bruyette & Woods wrote in a research note.