Japan’s Aozora Bank tanks after flagging losses tied to US commercial property

Shares of Aozora Bank tumbled to their lowest level in eight months Thursday after the Japanese bank warned of a fiscal-year net loss due to its exposure to U.S. office loans.

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

Aozora shares sank by as much as 21.5% to 2,557 yen (about $17.41), its lowest closing level since May 31. In comparison, Japan’s Nikkei 225 benchmark closed down 0.8% Thursday.

“Due to higher U.S. interest rates and a shift to remote work accelerated by COVID-19, the U.S. office market continues to face adverse conditions combined with extremely low liquidity,” the bank said in a statement on Thursday.

“While price discovery is anticipated to eventually improve with a gradual increase in office transactions on the back of an expected return-to-office movement as well as a pause in the rise in U.S. interest rates, our view is that it may take another year or two for the market to stabilize,” the bank added.

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

New York Community Bancorp 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.