Wells Fargo is Beginning to Have Borrower’s Default on Pre-pandemic Loans

But the defaults thus far haven't been as high as anticipated, although they've been rising as the economy has been returning to normal.

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Wells Fargo has announced that it is starting to see borrower defaults increase from their pandemic lows. The announcement was made by CEO Charles Scharf at the Goldman Sachs U.S. Financial Services Conference.

Scharf said that he believed the bottom had been reached and that the defaults are small.

Many banks over the past year, Wells Fargo included, released billions from their loan loss reserves to help boost profits in the wake of loan loss predictions that were better than anticipated. As conditions in the economy become more normal, though, borrower defaults have begun to rise, albeit smaller than expected.

Last year in the wake of the pandemic, the banking industry prepared for potential defaults. But, the government oversaw stimulus relief and aid to help prevent catastrophic losses. Banks, in particular, received up to $300 billion in indirect support from the government. According to the Federal Reserve, delinquency rates and charge-offs in the U.S. sit at the lowest they’ve been in decades.

Scharf said at the conference, “We would say the bottom has been reached.” He added that Wells Fargo is beginning to see “very, very small amounts of delinquency increases” further adding that the shift was “nothing meaningful, but just slightly different than we would have seen last quarter.”

Scharf further commented, “These cushions that have been built in with all this liquidity and demand for labor…will continue to provide a cushion for a period of time. But at some point, we get into ‘22, hopefully, more towards the end than in the beginning, there has to be some normalization. The charge-offs aren’t going to remain at this level.”

 

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