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 shares
8304,
slumped 21%, as it was the worst-performing stock in the Nikkei 225
JP:NIK
on Thursday, after cutting its annual profit forecast by 52% and its revenue forecast by 35%.
Aozora Bank 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 non-performing office loans by 58%, including a 63% reduction in Chicago, and reductions 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 more positive on New York, as it said 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 its total, and it classified 21 of those office loans worth $719 million as non-performing. 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 worth of the portfolio in its fiscal third quarter and is selling another 26.7 billion yen worth in the current fiscal fourth quarter, as it records losses on U.S. and European government bonds, U.S. mortgage-backed securities and U.S. investment grade bonds ETFs.
Related: Banks’ office-loan exposure remains a ‘mixed bag’ as lenders manage through downturn
