(Bloomberg) — Major US lenders, including Bank of America Corp. 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.
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Net charge-offs at Bank of America and Wells Fargo rose during the fourth quarter partly due to office loans, according to earnings releases Friday. JPMorgan Chase & Co. set aside more reserves because of a deteriorating outlook on commercial-property valuations, the bank reported 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’s caused a 35% decline in office prices from a peak in early 2022, according to real estate analytics firm Green Street.
The challenges won’t likely let up soon. Bank of America has about $7.6 billion of office loans maturing in 2024, and $3.1 billion in 2025, according to a presentation. While about 75% of its office loans are backed by higher-quality buildings, its percentage of non-performing office loans ticked up during the fourth quarter.
At Wells Fargo, non-accrual loans for offices totaled $3.4 billion at the end of December, up from $2.8 billion at the end of September and $186 million a year ago. 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 materialize 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% of the Wells Fargo’s total loans at the end of December. At Bank of America, the share was 6.9%.
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