New York and Japanese banks plummet due to problems with American office loans

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January 31, 2024
Today at
19:46

The regional New York Community Bank has identified problems with its loan portfolio. A Japanese bank is also getting into trouble due to American office loans. Both stocks are plummeting.

New York Community Bancorp

fell by 38 percent on the New York Stock Exchange on Wednesday, the biggest fall since the bank was listed on the stock exchange in 1993. The reason is a surprising quarterly loss related to the deteriorating quality of the loan portfolio.

The bank set aside $552 million in provisions to cover loan defaults. That is ten times more than analysts expected. “Management had said asset quality was strong. His tone has definitely changed,” said Jon Arfstrom, a banking analyst at RBC Capital.

The amount of loans that are 30 to 89 days past due increased by 48 percent in the last three months of 2023. The bank said net charge-offs in the quarter were mainly related to “just two loans.” “But due to the impact of the recent credit deterioration on the office portfolio, we have decided that it is prudent to increase the coverage ratio for credit losses,” the bank said in the report.

-25%

Offices

In the US, office buildings will lose an average of 25 percent in value by 2023.

At 9.1 percent, New York Community Bancorp’s core capital ratio – the financial strength of a bank – is lower than that of comparable banks such as KeyCorp and Regions Financial Corp. The bank says it wants to strengthen its reserves to be better in line with those of other banks.

Due to the emergency measures, the bank must reduce the quarterly dividend for shareholders by 70 percent from 17 to 5 dollar cents.

The doomsday message once again raises questions about the risk resilience of the American banking sector. What started as concerns about losses on Silicon Valley Bank’s bond portfolio – a consequence of the aggressive rate hikes with which central bankers fight inflation – spilled over the banking system in the spring of 2023.

The Dow Jones Regional Banks index fell 2.5 percent on Wednesday evening. Large American banks such as JPMorgan and Goldman Sachs are experiencing no impact on their stock prices.

The small Japanese bank also warned on Thursday morning Aozora, with approximately $700 million in invested assets, suffered major losses on its American loan portfolio, again in the office market. The stock plummets 20 percent in Tokyo. In November, CEO Kei Nanikawa said that the bank did not need to set up additional reserves for its portfolio of American real estate loans.

The sting of interest rate increases at central banks is clearly in the tail. The US real estate market has been hit by higher borrowing costs, which have driven down real estate prices. Office real estate in particular is experiencing stress. Office prices will have fallen roughly by 25 percent by 2023, according to an estimate by the research agency Green Street.

The article is in Dutch

Tags: York Japanese banks plummet due problems American office loans

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