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Aozora Bank's head office in Tokyo on February 1, 2024.
Story Highlights
Shares of New York Community Bancorp Inc. plummeted after the regional lender reported an unexpected $252 million loss last quarter.
Major bank indexes pared losses, but individual bank stocks are still seeing some rebound.
NYCB figured prominently during last year's banking crisis, but some analysts expect the turmoil will pass.
CNN, London —
Nearly a year after the banking crisis that led to the collapse of three U.S. regional lenders and the emergency takeover of Europe's Credit Suisse, a new chill is spreading to banks as far away as New York, Tokyo and Zurich.
What they all have in common is mounting losses from lending to the troubled commercial real estate sector.
Shares of New York Community Bancorp (NYCB) plunged 38% on Wednesday after the bank reported a loss of $252 million last quarter. The regional bank set aside $552 million in the fourth quarter to absorb loan losses, up from $62 million the previous quarter. Part of the increase was due to expected losses on loans used to finance office buildings, the company said.
The bank helped send the KBW Regional Banks Index plummeting 6% on Wednesday, its biggest percentage drop since May of last year, the same month that California-based First Republic suffered the third U.S. bank failure last year.
The index fell further on Thursday, down 4.8% by 11:19 a.m. ET, as shares of NYCB and other regional banks plummeted. NYCB shares fell nearly 13%, Banc of California fell 8% and BankUnited fell 8%.
The bulk of NYCB's losses were office-building related, the company said in an earnings release. “We're seeing a general weakening in office buildings across the country,” Chief Executive Thomas Cangemi said in a conference call with investors.
Since the turmoil last spring, investors and regulators have been wary of renewed stress on banks and have zeroed in on their exposure to the struggling commercial real estate market.
Brendan McDiarmid/Reuters
The screen shows trading information for New York Community Bancorp on the New York Stock Exchange on January 31, 2024.
With millions of workers continuing to work from home during the pandemic, the values of many buildings have plummeted, leaving vast swathes of office space vacant and underused. At the same time, historically high interest rates are making it difficult for real estate developers to repay the huge loans they often take out to finance their projects.
Japan's Aozora Bank said Thursday that its expected annual loss of 28 billion yen ($190 million) last year was due in part to bad loans linked to its U.S. branch. The bank had previously forecast a net profit of 24 billion yen ($160 million). The news sent the bank's shares tumbling more than 21 percent.
The bank said it will likely take another year or two for the U.S. office market to “stabilize” as more people return to work in person and the Federal Reserve moves from raising interest rates to lowering them.
Losses are also mounting in Europe. Swiss private bank and asset manager Julius Baer said on Thursday its adjusted profits fell 55 percent last year after it lost 586 million Swiss francs ($680 million) on a loan to a single “European conglomerate.” The losses prompted CEO Philipp Rickenbacher to announce his departure.
Julius Baer declined to reveal the identity of the company to CNN.
However, Reuters reported that the company in question was Cigna Group, an Austrian real estate developer that bought part of New York's iconic Chrysler Building in 2019. Several Cigna subsidiaries filed for bankruptcy in December, Reuters reported.
Bigger players are bracing for losses linked to commercial real estate.
Deutsche Bank, Germany's largest lender, said Thursday it allocated 123 million euros ($133 million) last quarter to absorb potential defaults on U.S. commercial real estate loans, more than four times the amount the bank set aside for the same three months in 2022.
NYCB's Cangemi said the company's poor fourth-quarter performance was partly due to its acquisition of $13 billion in loans from Signature Bank, one of three U.S. regional lenders that failed during last year's banking crisis.
These financial institutions failed to anticipate and respond appropriately to the impact of the sudden rise in interest rates, and anxious depositors frantically withdrew their cash. A good-old-fashioned bank run caused panic in financial markets, ultimately leading to the collapse of Credit Suisse, then one of the world's largest financial institutions, and prompting its rapid acquisition by rival UBS.
Arnd Wiegmann/Reuters
The headquarters of Swiss private bank Julius Baer in Zurich, Switzerland, February 2022.
Philip Lawler, managing director of market research at Wilshire Index, said the turmoil was unlikely to destabilize the large, well-capitalized banks.
“We should not become complacent,” he told CNN, noting that all of the bank runs last year “started as little ripples that got bigger and bigger.”
The KBW Bank Index, which tracks the 24 largest U.S. banks, is up 29% since a low last May. Europe's benchmark, the STOXX Europe 600 Banks Index, which tracks 42 of the largest banks in the EU and Britain, is up 23% since a low in late March.
Both indexes fell on Thursday.
“This is something of a repeat of what happened last year, where there may be a ripple effect, but it may be limited to a few smaller banks and not the systemically important banks,” Lawler said.
CNN's Matt Egan contributed to this report.