On the heels of a profit warning from New York Community Bancorp that was at least partly due to the deteriorating office-loan market, a Japanese bank cut the value of some of its own U.S. office loans by more than 50%.
Aozora Bank’s stock
8304,
Aozora said the U.S. office market faces adverse conditions due to higher U.S. interest rates and a shift to remote work. It cut the value of its nonperforming office loans by 58%, including a 63% reduction in Chicago and reductions of between 51% and 59% in New York; Washington, D.C.; Los Angeles; and San Francisco.
Its commentary on the Chicago market was particularly bleak: “A considerable amount of time is required to recover supply and demand balances in urban areas. The volume of property sales remains very low.” It was a bit less negative on New York, saying supply and demand is expected to recover in Manhattan earlier than other cities.
U.S. office loans of $1.89 billion were 6.6% of Aozora’s total, and it classified 21 of those office loans worth $719 million as nonperforming. It boosted its loan-loss reserve ratio on U.S. offices to 18.8% from 9.1%.
Aozora also reduced its securities portfolio after being burdened by losses from foreign bonds, mostly due to the rise in U.S. interest rates.
It sold 9.3 billion yen’s worth of the portfolio in its third fiscal quarter and is selling another 26.7 billion yen worth in its current, fourth quarter, as it records losses on U.S. and European government bonds, U.S. mortgage-backed securities and U.S. investment-grade bond ETFs.
New York Community Bancorp stock
NYCB,
Deutsche Bank
DBK,
“The [i]nterest-rate environment remains [a] key driver for refinancing risk and potential [credit-loss provisions] in 2024 especially in office, with further drivers being ongoing sponsor support and expiring rental agreements,” said the Deutsche Bank presentation.
Separately, BNP Paribas shares
BNP,
Read on: Banks’ office-loan exposure remains a ‘mixed bag’ as lenders manage through downturn
