Wells Fargo Abandons Iconic Tower as Office Loan Losses Mount

As losses mount from its exposure to loans backed by office properties that have seen their values drop, Wells Fargo continues to cut expenses by reducing the bank’s CRE footprint.

Wells Fargo has announced that it will abandon its iconic namesake tower in Raleigh, NC and relocate the workers to other locations across the region. The 29-story Wells Fargo Capitol Center dominates the skyline over Fayetteville Street.

Wells Fargo did not indicate how much space it currently is occupying in the 551K SF building but said vacating the 33-year-old tower would not involve any job reductions.

“We are committed to our Raleigh-based employees and will continue to have a major employee presence here, but we have more real estate than we need to support these employees,” the company said, in a statement.

The move in Raleigh coincides with Wells Fargo’s disclosure last week that the total of non-accrual loans in its portfolio backed by office buildings increased to $3.4B at the end of December, up from $2.8B in Q3 and $189M at the end of 2022.

A loan is classified as non-accrual when a payment hasn’t been received in at least 90 days. The term refers to loans that have stopped accruing interest, meaning the lender is not earning any revenue on them. After 90 days, these loans are considered non-performing.

Loans backed by CRE account for an estimated 16% of Wells Fargo’s loan portfolio. In a call with investors last week, Michael Santomassimo, the bank’s CFO, indicated that Wells Fargo expects the tally of non-performing office loans to increase.

“As expected, losses started to materialize in our commercial real estate office portfolio as market fundamentals remained weak. While the charge-offs we took in the fourth quarter were contemplated in our allowance, we are still early in the cycle,” Santomassimo said, during the call.

“It’s a long movie,” Santomassimo added, according to a report in American Banker. “We’re past the opening credits, but we’re still in the beginning of the movie. So, it’s going to take some time for this to play out.”

The Wells Fargo CFO said the bank is not “seeing the stress spread to other parts” of its CRE portfolio, the report said.

Banks with significant office loan exposure are being caught in the squeeze between high interest rates, record-high office vacancy rates and a decline in office prices, which have dropped by 35% since H1 2022, according to Green Street.

Banks including Bank of America, JPMorgan Chase and Wells Fargo have been setting aside reserves to cover anticipated charge-offs on non-performing office loans.