Dive Overview:
Wells Fargo Chief Financial Officer Michael Santomassimo on Monday described current efforts to ease pressure on the commercial real estate market as “a long movie that goes a little bit past the opening credits,” expanding on comments he made during an earnings conference call last month. “We're not just getting started, but we've got a long way to go before we actually see a final resolution of a lot of the issues,” Santomassimo said Monday in response to a question from UBS analyst Erica Najarian during a conference call in Chicago. “There are maturities, there are extensions, there's a lot of events, and it's going to take some time to get to any kind of resolution.” Santomassimo said the problems in the San Francisco, California-based financial giant's commercial real estate portfolio have been largely concentrated in the office sector, which he described as “where the most pressure is.” At the same time, he said multifamily and other underlying asset classes are “doing pretty well.”
Dive Insights:
Santomassimo's comments come as many chief financial officers are looking to cut costs by downsizing or shrinking office space as remote work increases. These long-term changes have hurt office landlords and property values, leaving lenders struggling to write off bad commercial real estate loans. Meanwhile, a major U.S. regulator has flagged the commercial real estate market as a major risk to financial stability this year.
Santomissimo said in June that the bank was spending a lot of time thinking about CRE and the reserves it would need to prepare for future losses it may face.Fourth-quarter credit loss reserves included higher reserves from credit card and commercial real estate loans, including higher net charge-offs on commercial real estate office loans and credit card loans, Wells Fargo reported last month.
Asked Monday whether there were further ways Wells Fargo could modernize its infrastructure and cut costs, Santomassimo said there was room for further cost-cutting in the real estate sector beyond commercial mortgage lending, with the bank seeking to boost efficiency.
He believes there are still many opportunities to create further efficiencies across the company, including automating foundational processes and reducing real estate, but he said making the right real estate decisions will take time.
“There's still too much real estate out there,” he says. “It's going to take time to process it in a planned way. Can we do it sooner and incur a big expense? Maybe we could, but it's not wise. We've done some of that work and we want to maximize the value.”
The bank's changes to its real estate holdings are already making waves in some markets where it's a major employer: For example, the bank plans to vacate its namesake building in downtown Raleigh, North Carolina, according to real estate trade publication CoStar.