On the 1st, Aozora Bank downwardly revised its consolidated performance forecast for the current fiscal year (ending March 2024). Net income suddenly changed from a surplus of 24 billion yen to a deficit of 28 billion yen. In addition to recording additional reserves for losses on real estate loans for U.S. offices, the company will eliminate unrealized losses on foreign bonds due to rising U.S. interest rates.
Aozora silver sign
Photographer: Kiyoshi Ota/Bloomberg
The bank also announced personnel changes, with Vice President Hideto Omi being promoted to president on April 1, and President Kei Tanigawa retiring. At a press conference on the same day, President Tanigawa said, “I would like to apologize for the fact that the results were much lower than initially expected.We aim to achieve steady results with the new management structure.”
The dividend forecast for the third quarter and year-end is no dividend. This is the first time in 15 years that the company has posted a final deficit since the fiscal year ended March 2009. Aozora Bank’s stock price fell 21% from the previous day to 2,557 yen, closing at the lowest price limit (a decline at the full price limit), the lowest rate of decline since October 2008. President Tanigawa announced that he will return a portion of his director’s compensation due to the fact that there will be no dividend for the second half of the year.
Regarding the worsening market conditions for U.S. commercial real estate, New York Community Bancorp (NYCB), a regional bank holding company, announced on January 31st that it was under pressure to strengthen reserves and forecast in its October-December 2023 (fourth quarter) financial results. Announcement of external deficit. This has had a serious impact on some local banks, and has spread to Japan as well.
blue sky silverDisclosure materialsAccording to the company, the real estate lending market for office buildings in the United States is in a difficult situation due to low liquidity in the market, and explained that it will take into account the effects of the unstable market and make provisions with added stress for companies that are at risk of bankruptcy. President Tanigawa had said in November that additional provisions for real estate loans in North America would not increase significantly, but the company ended up recording an additional provision of 32.4 billion yen in the third quarter.
Regarding his remarks in November, President Tanigawa said, “In the end, it didn’t turn out the way I said it and I regret it.At that time, I thought we had enough reserves.”
As of the end of December, the bank’s loan balance for US office projects was $1.893 billion (approximately 278 billion yen), accounting for 6.6% of its total loans. The reserve ratio for loans to protect against losses has been significantly raised from 9.1% at the end of September to 18.8%.
Aozora Bank was established in 1957 as “Japan Real Estate Bank” under the Long-Term Credit Bank Law.set upIt was done. The company has a long history of being involved in the business of lending funds secured primarily by domestic real estate. According to President Tanigawa, the company started its real estate business in the United States over 20 years ago.
Regarding the company’s future involvement in U.S. real estate, President-elect Omi, who will take the helm from April, said, “We will review our capital allocation somewhat.” Regarding the impact on office loans, he said, “Before the coronavirus, it was common for people to come to the office to work, and we never thought we would be forced to work from home.This is where we made a mistake. “Maybe,” he said.
Pay close attention to the ripple effects of deteriorating market conditions
Tomoichiro Kubota, senior market analyst at Matsui Securities, said of Aozora Bank, “During the last year, the processing of reserves had progressed and there was a feeling that the worst had passed, but when we opened the lid… It was a shock to see us fall into the red.” Like the bank, he believes, “No bank has focused so much on U.S. real estate, and megabanks are able to control risk.I don’t think this will lead to a general sell-off of bank stocks.” .
Risks associated with overseas real estate are one of the areas that the Financial Services Agency is keeping a close eye on. In response to an interview with Bloomberg, a representative from the agency said that foreign real estate accounts for a relatively small proportion of total lending among major banks, and that the impact on management will be limited. However, the deterioration in overseas real estate market conditions is having a ripple effect. He said he would continue to monitor the possibility of doing so.
The TOPIX Bank Stock Index temporarily fell 1.8% during the day’s trading, but the decline slowed and the closing price was 0.8% lower, the same decline as the TOPIX. The shock of Aozora Bank’s sharp decline did not spread to other bank stocks.
In addition to dealing with U.S. real estate, Aozora Bank will accelerate the sale of foreign bonds and other securities that have suffered write-downs due to rising U.S. interest rates. It is expected to post a loss of 41 billion yen by March 2024.
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