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Wells Fargo CFO sees 'late-cycle' behavior in CRE

Wells Fargo & Co. CFO John Shrewsberry said the bank is seeing evidence of late-cycle behavior in commercial real estate with increasing competition from nonbanks.

In the third quarter, the bank reported a $2.2 billion linked-quarter decline in its commercial real estate loans, weighing on loan growth. On the bank's Oct. 15 earnings call, Shrewsberry said investors and analysts should expect the bank to remain cautious on the sector.

"That really is one market where there's late-cycle behavior, there's lots of nonbank competitors. There are more nonbank competitors than bank competitors, so we really have to pick our spots in order to maintain our risk/rewards," he said. "It's also one of those areas where, frankly, your weakest loans end up getting refinanced away from you, which is also late-cycle behavior."

At the same time, Shrewsberry said the bank's commitments for construction financing were up in the third quarter, which should contribute to funded loans in the fourth quarter.