Japan’s Aozora Bank hits near 3-year lows as bad U.S. property loans prompt loss forecast

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The Aozora Bank Ltd. headquarters in Tokyo Japan, on Thursday, Feb. 1, 2024. Japan’s Aozora Bank became the second lender in a span of hours to surprise investors with losses tied to US commercial property, sending shares down by the limit and heightening concern over global banks’ exposure to souring real estate bets.
Akio Kon | Bloomberg | Getty Images

Aozora Bank shares hit near three-year lows Friday, as investors continued to hammer the Japanese commercial lender after it changed its outlook to an annual loss from a profit forecast earlier.

Aozora plunged by as much as 18.5% in early Friday Tokyo trade, sending its shares to their lowest levels since February 2021 — the Nikkei 225 benchmark was up 0.5%.

The bank’s Tokyo-listed stocks fell for a second day, tracking losses in U.S. regional lenders overnight over to their exposure to U.S. office loans.

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Aozora Bank tumbles again

The Tokyo-based commercial lender said Thursday it now expects to post a net loss of 28 billion Japanese yen ($191 million) for the fiscal year ending March 31, compared with its previous forecast for a net profit of 24 billion yen.

Aozora’s announcement came shortly after U.S. regional bank New York Community Bancorp announced a surprise net loss of $252 million for the fourth quarter.

NYCB also slashed its dividend and said it had “[built] reserves during the quarter to address weakness in the office sector” — renewing some fears over the strength of U.S. regional banks, which were embroiled in a liquidity crisis last year.

The lender said this was in response to its purchase of the assets of Signature Bank, one of the regional banks that collapsed in last year’s crisis. That purchase raised their total assets to $100 billion, placing them in a category that subjects the bank to more stringent liquidity standards.

Bank of America analysts said in a Wednesday note that the sell-off in U.S. regional banking shares on contagion fears is “likely overdone given idiosyncratic factors tied to NYCB.”

“However, higher losses tied to commercial real estate office exposure, increase in criticized loans tied to multi-family CRE [commercial real estate] are a reminder of ongoing credit normalization that we are likely to witness across the industry,” Bank of America U.S. banking analysts wrote.

“It is worth pointing out that the credit/liquidity build at NYCB are mostly the bank playing catch-up to actions taken by larger regional peers over the last year,” they added.

— CNBC’s Michael Bloom contributed to this story.

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