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Dominoes: After NYCB, Shares Of Japanese Bank Implode On Massive US CRE Writedown

February 1, 2024

Dominoes: After NYCB, Shares Of Japanese Bank Implode On Massive US CRE Writedown

Following a profit warning from New York Community Bancorp on Wednesday, partially attributed to turmoil in the commercial real estate sector, Japan’s Aozora Bank Ltd. slashed the value of some of its US office tower loans by more than 50%, according to Bloomberg.

New York Community Bancorp’s move to slash its dividend and bolster reserves led to a 38% plunge in its shares yesterday, also triggering the largest drop in the KBW Regional Banking Index since the collapse of Silicon Valley Bank last March.

Like rows of falling dominoes, Aozora Bank, the 16th largest in Japan by market value, recorded a 20% plunge in shares on Thursday after reporting a net loss of 28 billion yen ($191 million) for the fiscal year. This was in stark contrast to its earlier projection of a 24 billion yen profit.

Aozora wrote down the value of its non-performing office loans by 58%, including a 63% reduction in Chicago and between 51% and 59% in New York, Washington D.C., Los Angeles, and San Francisco – all of these cities are plagued with violent crime and controlled by radical Democrats.

US office loans totaled about 6.6%, or approximately $1.89 billion. It said 21 office loans worth $719 million were classified as non-performing. It increased its loan-loss reserve ratio on US offices to 18.8% from 9.1%.

Several months ago, we pointed out: “Next bank failure will be in Japan.”

“It’s a shock,” said Tomoichiro Kubota, a senior market analyst at Matsui Securities Co., adding, “The expectation was the worst was over and that the bank had set aside enough provisions.”

For lenders, this development is a major warning sign that a tsunami of office loan defaults could be on the horizon. Many landlords struggle to repay or finance existing loans in an environment with high-interest rates. Some are simply walking away from properties.

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