Bad office loans mount at Bank of America, Wells Fargo
MAJOR US lenders, including Bank of America and Wells Fargo & Co, wrote off more of their commercial-property loans as remote work and higher interest rates pummel the valuations of US offices.
Net charge-offs at Bank of America and Wells Fargo rose during the fourth quarter partly due to office loans, according to earnings releases on Friday (Jan 12).
JPMorgan Chase & Co set aside more reserves because of a deteriorating outlook on commercial-property valuations, the bank reported on Friday.
Banks have been grappling with fallout from climbing office vacancies in the aftermath of the pandemic and financing costs that have soared as the Federal Reserve raised interest rates. That has caused a 35 per cent decline in office prices from a peak in early 2022, according to real estate analytics firm Green Street.
The challenges will likely not let up soon. Bank of America has about US$7.6 billion of office loans maturing in 2024, and US$3.1 billion in 2025, according to a presentation.
While about 75 per cent of its office loans are backed by higher-quality buildings, its percentage of non-performing office loans ticked up during the fourth quarter.
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At Wells Fargo, non-accrual loans for offices totalled US$3.4 billion at the end of December, up from US$2.8 billion at the end of September and US$186 million a year earlier. The vast majority of Wells Fargo’s property loans that were considered non-accrual at the end of 2023 were backed by offices. “As expected, losses started to materialise in our commercial real estate office portfolio as market fundamentals remained weak,” Wells Fargo chief financial officer Michael Santomassimo said Friday on a call with investors.
“While the charge-offs we took in the fourth quarter were contemplated in our allowance, we are still early in the cycle.”
Commercial-property loans accounts for 16 per cent of the Wells Fargo’s total loans at the end of December.
At Bank of America, the share was 6.9 per cent. BLOOMBERG
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