Wells Fargo lost $2.4 billion last quarter, setting the stage for its first dividend cut since the Great Recession

Wells Fargo swung to its first quarterly loss since the Great Recession, forcing the struggling bank to warn it will likely slash its coveted dividend by 80%.

The poor results were driven by soaring expenses linked to Wells Fargo’s scandals and surging credit costs caused by the bank’s darkening economic view. Wells Fargo also doesn’t have as much exposure to booming markets that have padded the bottom lines of some of its rivals.

Wells Fargo (WFC) suffered a loss of $2.4 billion during the second quarter, a sharp reversal from the $6.2 billion the lender earned a year ago. The bank lost 66 cents per share, more than three times as much as feared. It’s Wells Fargo (WFC)’s first loss since late 2008 during the height of the financial crisis.

Revenue dropped by a steeper-than-expected 18% to $17.8 billion.

JP Morgan Chase's Chairman and CEO Jamie Dimon attends a session at the Paris Europlace international financial forum in Paris on July 11, 2017. (Photo by Eric Piermont/AFP/Getty Images)

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Wells Fargo said it expects to cut its dividend to just 10 cents a share, subject to board approval. That would make Wells Fargo the first major bank to do so, underscoring the fragile state the company entered the crisis. This marks a reversal from the Great Recession, when Wells Fargo, in 2009, was among the last of the big banks to cut its dividend because of its relative strength.

Charlie Scharf, Wells Fargo’s CEO, said in a statement the bank is “extremely disappointed” in both its results and the expectedsharp dividend cut.

Investors were also concerned by the move. Wells Fargo’s stock dropped 6% in premarket trading. The stock has lost more than half of its value so far this year.

Worries about the economy forced Wells Fargo to ramp up its allowance for credit losses for loans by $8.4 billion from the first quarter. Much of that was driven by commercial and residential real estate loans.

“Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter,” Scharf said,” which drove the $8.4 billion addition to our credit loss reserve in the second quarter.”

Scandals are still haunting Wells Fargo

It was Wells Fargo’s highest quarterly provision for bad loans in the bank’s history, topping even the fourth quarter of 2008, according to Edward Jones.

Kyle Sanders, analyst at Edward Jones, said that he was bracing for “weak results” from Wells Fargo but these numbers are “awful.”

“This will be the toughest quarter for the banking industry since the financial crisis in 2008, and Wells results will be the worst of the bunch,” Sanders wrote in a note to clients.

Wells Fargo’s scandals continue to haunt the company.

The bank can’t aggressively lend more because restrictions from the Federal Reserve prevent it from growing its balance sheet. And Wells Fargo can’t slash costs because of legal and compliance costs linked to the fake accounts scandal that erupted in 2016.

In fact, Wells Fargoreported a $1.1 billion jump in non-interest expenses, including operating losses of $1.2 billion caused by customer refunds and legal costs.

Meanwhile, Wells Fargo has a smaller presence on Wall Street than some of its peers like JPMorgan Chase (JPM), which reported better-than-feared results Tuesday in part due to booming markets revenue.

Wells Fargo warned that it has $10.4 billion of commercial real estate loans where repayment is questionable because of the health of the borrowers. That’s up by 140% from the first quarter. Most of that spike in so-called “criticized loans” was driven by sectors slammed by the pandemic, including hotels, shopping centers, retail and office buildings.

Wells Fargo also has significant exposure to the oil and gas industry, which is hurting from depressed prices. The bank reported $32.7 billion of oil and gas loan commitments, down 12% from the first quarter. Wells Fargo said the amount of troubled loans to the industry climbed 26% from the first quarter to $3.9 billion because of “commodity price volatility” and credit rating downgrades.