Dive Brief:

• Wells Fargo CFO Mike Santomassimo said Tuesday that the company is continuing to grapple with potential losses related to its commercial real estate exposure, noting that office assets were of particular concern.

• While the company’s growing credit card business has been a bright spot, Wells Fargo is “spending a lot of time” thinking about CRE and may need to increase its reserves in connection with it, he said during a presentation at a Morgan Stanley conference this week. 

• “As more and more time goes by, you get some more information and we can refine some of the dials in the model. And as we refine those dials, we’ll have to likely reserve a bit more to hopefully get ahead of whatever losses could come over time,” Santomassimo said, adding that this doesn’t mean the bank would lose money. 

Dive Insight:

Wells Fargo isn’t the only bank to be struggling with problems stemming from the slumping office market. Goldman Sachs CEO David Solomon, in an interview on CNBC on Monday said the company would disclose impairments on loans and equity investments tied to commercial real estate in the second quarter. Financial firms typically recognize loan defaults and falling valuations as write-downs, CNBC said.  

Wells Fargo’s first-quarter net income rose to $4.99 billion from $3.788 billion from a year earlier, but CEO Charlie Scharf said in April that delinquencies and net charge-offs continued to slowly increase as expected, according to the company’s earnings release.

The bank’s provision for credit losses in first quarter included a $643 million increase in the allowance for credit losses that reflected an increase for commercial real estate loans, primarily office loans, as well as an increase for credit card and auto loans.

Santomassimo on Tuesday said the company’s booked allowance increase could rise a little higher than it did last quarter, making the difference “closer to a billion depending on where it all shakes out.”   

Separately, the CFO was optimistic about the company’s net interest income. The bank had earlier predicted a 10% higher net interest income this year, according to a Reuters report.

The bank had been hopeful there’d be a boost in NII in the second half of the year, Santomassimo said.

“As more time goes by we’re more and more confident that there will be some upside,” he said.