Aozora Bank Ltd. shares plunged by the allowable limit after it forecast a loss for the year because of investments in the US commercial property sector.
The bank announced that it expects to post a net loss of 28 billion yen ($191 million) for the fiscal year, compared with its previous forecast of a 24 billion yen profit. The bank said the loss is due the additional draw down of loans for US real estate and losses on sales of foreign bonds. It made an additional reserve of 32.4 billion yen against bad loans related to US office real estate in the third quarter.
Shares fell more than 21% to 2,557 yen in Tokyo.
Aozora’s woes echo the situation at another bank across the world, with New York Community Bancorp slashing its dividend and stockpile reserves due to its exposure to the US commercial real estate market.
Regional lenders are more exposed to the real estate industry, and stand to be hit harder than their larger peers because they lack the large credit card portfolios or investment banking businesses that can insulate them. Last month, a senior official at Japan’s Financial Services Agency said the regulator will examine banks’ exposure to property loans, given the worsening conditions of real estate markets in the US and Europe.
In its presentation, Aozora said its US office loan outstandings were $1.9 billion, accounting for 6.6% of total loans.
The bank said it reviewed property valuations and increased reserves by making extra provisions to be more prepared for a potential rise in the number of workouts, including debt collection through a sale of the underlying property assets. It may take another year or two for the market to stabilize, it said.
Aozora also said it decided to accelerate the sale of securities given unrealized losses on its portfolio, consisting mainly of foreign bonds, primarily due to the rise in US interest rates.
Written by: Taiga Uranaka @Bloomberg
The post “US Property Losses Trigger 20% Plunge in Japanese Bank Aozora” first appeared on Bloomberg
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