New York Community Bancorp Isn’t the Only Bank Warning About U.S. Office Loans

Wall Street also was reviewing its assessment of the stock. Raymond James and Jefferies downgraded the shares to the equivalent of Hold. J.P. Morgan, however, said the selloff was “overdone” and maintained a Buy rating, reiterating NYCB remained its top pick for 2024; it lowered NYCB’s price target to $11.50—implying a 78% upside to Wednesday’s $6.47 closing price—from its previous target of $14.

As investors and analysts digested the fallout, there was another warning about U.S. office loans overnight.

Japan’s

Aozora Bank

said it expects to post a net loss for the fiscal year, due to higher provisions for U.S. office loans. It was a sharp revision to a loss of 28 billion yen ($190.5 million), from a previous forecast for profit of 24 billion yen. The stock plunged 21% 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.

The bank said it may take another year or two for the market to stabilize.

It also expects to book a 41 billion yen loss in its securities portfolio in the second half of the fiscal year, ending March 31, mainly from foreign bonds and again due to high U.S. interest rates.

Aozora’s update, just hours after NYCB’s move to slash its dividend and increase its loan-loss reserves by a half-billion dollars, may spread further concerns across the sector.

Gavekal Research economists Will Denyer and Tan Kai Kyan said there were “plenty of reasons to worry about the health of U.S. banks, especially smaller banks,” in a note Thursday.

“Asset quality is deteriorating. U.S. commercial real estate is in a slow-moving train wreck,” they said, noting that small banks are particularly exposed. Large unrealized losses from the 2022-23 bond selloff remain a worry, they said, as well as high money market rates drawing money out of deposits.

However, J.P. Morgan analyst Steven Alexopoulos wrote that the issues impacting NYCB were “specific to the company with little read-through to the broader regional banks,” in a note Thursday.

He added, “The sell-off in NYCB is overdone in our view and…the stock poised to rebound materially.” The analyst noted that the bank announced a number of strategic actions including bolstering its reserve levels, liquidity, and capital.

The shares picked up a downgrade from Raymond James analyst Steve Moss, though, who changed his rating to Market Perform from Strong Buy. “The results will likely put the stock in the penalty box until [there’s] greater clarity around capital, credit, and future business plans,” he said.

The KBW Regional Banking Index fell 6% Wednesday.

Zions Bancorp

and

Western Alliance

shares both fell 6%,

M&T Bank

stock declined 4%, and

Eagle Bancorp

shares tumbled 10%. 

Shares of NYCB, which acquired

Signature Bank

during last year’s regional bank crisis, rose 3.2% in premarket trading Thursday.

Write to Callum Keown at [email protected]