Wells Fargo (NYSE:WFC) may struggle to maintain its dividend as banks prepare for difficult quarters ahead that could include increased credit provisions and more writedowns. That’s according to a team of analysts at Keefe, Bruyette & Woods (KBW), led by Christopher McGratty, who recently created a list of 21 banks that are “potential dividend cut candidates.” 

Overall, KBW analysts believe dividends are “broadly safe” for 90% of banks. But by far, Wells Fargo was the largest bank on its list, with roughly $1.98 trillion in total assets. The next closest was Citizens Financial Group, which holds $176 billion in assets.

Wells Fargo

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“Wells Fargo’s issues appear self-isolated,” the analysts wrote in their note, referring to the $1.95 trillion asset cap placed on the bank by the Federal Reserve in 2018 as a result of the bank’s phony-account scandal.

KBW analyst Brian Kleinhanzl wrote in a separate note that “WFC’s high payout ratio is the primary driver of investor fear that a dividend cut could happen.”

Wells Fargo’s quarterly dividend is $0.51 per share. That would result in a yield of 9.10%, based on the stock’s closing price of $22.42 on May 13. Kleinhanzl in his note cited an estimated dividend payout of 221% for Wells Fargo in 2020.

Other analysts are also growing concerned with the bank. Recently, UBS analyst Saul Martinez put out a research note suggesting Wells Fargo may struggle more this year than other large banks.

He cited the fact that the asset cap is preventing the bank from earning enough to protect against future loan losses.

Martinez is also concerned that the bank has not set aside enough cash to cover future loan losses, specifically in regards to its commercial and industrial loan portfolio.

Wells Fargo only reported $0.01 per share in the first quarter, down from $1.20 per share in the prior-year period, posting the largest decline in profits of any of the larger banks. 

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