U.S. commercial property losses cause Japanese bank to drop over 20%

• The commercial lender in Tokyo anticipates a net loss of 28 billion yen for the fiscal year ending March 31.
• Since May 31, Aozora's closing price has dropped by as much as 21.5% to 2,557 yen (approximately $17.41), which is its lowest level.
• Japan’s Nikkei 225 benchmark closed down 0.8% Thursday.
• Aozora anticipates that the U.S. office market will take another year or two to stabilize.

The Japanese bank's fiscal-year net loss due to its exposure to U.S. office loans caused its stock price to fall to its lowest level in eight months on Thursday.

The Tokyo-based commercial lender now anticipates a net loss of 28 billion Japanese yen ($191 million) for the fiscal year ending Mar. 31, a reversal from its earlier projection of a net profit of 24 billion yen.

On Thursday, Japan's benchmark decreased by 0.8%, while Aozora experienced a decline of up to 21.5% to 2,557 yen (approximately $17.41), which was its lowest closing price since May 31.

The U.S. office market is facing adverse conditions due to higher interest rates and a shift to remote work accelerated by COVID-19, resulting in extremely low liquidity, the bank stated on Thursday.

The bank stated that although the market anticipates price discovery to improve with an increase in office transactions due to the return-to-office movement and a pause in the rise of U.S. interest rates, it may take another year or two for the market to stabilize.

U.S. regional bank announced a surprise net loss of $252 million for the fourth quarter, cutting its dividend and stating that it built reserves to address weakness in the office sector, renewing some concerns about the strength of U.S. regional banks, which faced a liquidity crisis last year.

In response to its acquisition of Signature Bank's assets, New York Community Bancorp increased its total assets to $100 billion, which put the bank under stricter liquidity requirements.