Dive brief:
- Wells Fargo Chief Financial Officer Michael Santomassimo on Monday characterized ongoing efforts to ease pressures in the commercial real estate market as a “long movie” that is only “a little beyond the opening credits,” explaining his comments during an earnings conference call last month.
- “We’re not at the beginning, but … we still have a long way to go to really see the ultimate resolution of a lot of this,” Santomassimo said Monday, responding to a question from UBS analyst Erika Najarian during a conference in Chicago. “You’ve got expirations, you’ve got extensions, you’ve got a bunch of events … It takes a little bit of time to play around with it to get some resolution.”
- Broadly speaking, Santomassimo said the problems for the San Francisco, Calif.-based financial giant’s commercial real estate portfolio centered on the office sector, which he described as “The place where you see the most pressure.” At the same time, he said multifamily and other underlying asset classes perform “fairly well.”
Diving knowledge:
Santomassimo’s comments come as the rise of remote working has led many CFOs to downsize or reduce their office footprint and realize savings. That secular shift, in turn, has hit office owners and property values and left lenders grappling with write-downs on commercial real estate loans. Meanwhile, major US regulators have branded the commercial real estate market as a main risk to financial stability this year.
Santomissimo said in June that the company was spending a lot of time thinking about CRE and the reserves it would need to get ahead of anything. losses that the bank may suffer over time. Provisions for credit losses in the fourth quarter include an increase in the allowance for those motivated by credit cards and commercial real estate loansthat included higher net loan charges for commercial real estate offices and credit card loans, Wells Fargo reported last month.
Aside from its CRE lending, real estate is also a place where Wells Fargo has room to cut costs further as the bank looks to achieve efficiencies, Santomassimo said, responding to a question Monday about whether he sees more ways to modernize the bank’s infrastructure and cut expenses.
Across the company, he said he still sees plenty of opportunity to create more efficiencies, such as automating more underlying processes and trimming its real estate. But, he said, making the right decisions about real estate takes time.
“We still have too much real estate,” he said. “It takes time to do it in a methodical way. Could we do it faster and take on big charges? Maybe, but it’s not unreasonable… We also want to maximize value as we get some of this work done” .
Changes in the bank’s real estate holdings are already having an impact on some markets where it has been a major employer. For example, the bank is said to be ready leave his homonymous tower in downtown Raleigh, North Carolina, according to real estate trade publication CoStar.
