The Japanese bank has slashed the value of some of its U.S. office loans by more than 50% following a profit warning from New York Community Bancorp that was at least partly due to a deterioration in the office loan market.
Aozora Bank Stock 8304,
The company fell 21%, making it the worst performer on the Nikkei Stock Average JP:NIK on Thursday after cutting its full-year profit forecast by 52% and sales forecast by 35%.
Aozola said the US office market is facing unfavorable conditions due to rising US interest rates and the shift to remote work. Reduced the value of distressed office loans by 58%, including a 63% reduction in Chicago and a 51% to 59% reduction in New York. Washington DC; Los Angeles; and San Francisco.
Regarding the Chicago market in particular, “It will take a considerable amount of time for the supply and demand balance in the city to recover. Real estate sales volume is still very low.” In Manhattan, supply and demand are expected to recover faster than in other cities. Negative attitudes toward New York have weakened somewhat.
US office loans of $1.89 billion accounted for 6.6% of Aozora’s total value, of which 21 office loans worth $719 million were classified as non-performing loans. The loan loss reserve ratio for its US bases has been raised from 9.1% to 18.8%.
Aozora also reduced its securities portfolio due to losses on foreign bonds, primarily due to rising U.S. interest rates.
The company sold 9.3 billion yen worth of portfolio in the third quarter and posted losses on U.S. and European government bonds, U.S. mortgage-backed securities, and U.S. investment-grade stocks, so it expects more in the fourth quarter. It has sold a portfolio worth 26.7 billion yen. Bond ETF.
New York Community Bancorp Inc. NYCB,
Shares closed 38% lower on Wednesday after unexpected losses and a dividend cut. The news also affected the stock prices of other U.S. regional banks KRE.
Deutsche Bank DBK,
spends two pages of its 53-slide investor presentation on its fourth quarter results for commercial real estate, which has a portfolio of 38 billion euros or 8% of total loans. In the past six quarters, it has recorded a provision for loan losses of 365 million euros on 8 billion euros in loans, the majority of which came from its offices, it said. In the fourth quarter alone, Deutsche Bank’s US commercial real estate reserves increased from €26 million to €123 million.
” [i]Interest rate environment continues [a] Main factors of refinancing risk and possibility [credit-loss provisions] In 2024, continued sponsor support and the expiry of the rental agreement will provide further impetus, especially during his tenure,” Deutsche Bank’s presentation said.
Separately, BNP Paribas shares BNP,
Shares fell on Thursday after France’s biggest banks cut their long-term profit forecasts.
read: Banks’ exposure to office loans remains ‘mixed’ as lenders cope amid economic downturn
