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Wells Fargo & Co (NYSE:WFC) Expects Higher Litigation Costs

Wells Fargo & Co (NYSE:WFC) said that it increased the projected amount it need to pay as litigation costs. It is in excess of legal reserves and can amount to almost $1.2 billion for the quarter ended March 31, 2015 from $1.1 billion a quarter earlier. It is a key parameter considered by investors as they look out if legal costs are rising or declining compared to previous expectations. Most of the banks do not disclose their reserves.

Update on loan payments

Wells Fargo said that more of its borrowers from the energy industry are lagging behind on loan payments in the first quarter of 2015. The outstanding loans to oil and gas companies are classified under “non-accrual.” It indicates that there is no surety on getting the loan amount back on time. The non-accrual loans surged 26% to $96 million from previous quarter.

The company reported that the total size of energy portfolio increased to $18.48 billion, or almost 2% of its over-all loan portfolio. Nevertheless, energy loans accounts for 14% of all of bank’s industrial and commercial loans categorized as non-accrual.

The expectations

Considering the sharp decline in prices of oil since mid-2014, the worsening of loan performance, particularly in energy segment was very much expected. In March, however, John Shrewsberry the CEO said that Wells Fargo recorded minimal credit losses on loans in energy segment in the first quarter of fiscal. The oil prices declined from highs of over $100 per barrel to levels of $50 per barrel in a matter of few months.

Wells Fargo & Co (NYSE:WFC) has largely remained on sidelines from major legal settlements that other banks were forced to deal with to solve regulatory issues in the run-up to the big financial crisis. It was not involved in any major cases or legal proceedings as reported in recent filing with the SEC.

Published by Fiona

Fiona is a finance graduate and an expert in analyzing market trends.

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