In the past 24 hours, with the backdrop of the Federal Reserve's insistence on "no interest rate cuts in March", banks across three continents around the world have collectively issued warnings about losses in commercial real estate, and the heads of two banks have resigned as a result.
Based on Beijing time, the order is roughly as follows:
On Wednesday evening, the New York Community Bank reported huge loan losses, some of which were related to commercial real estate projects, causing its stock price to plummet by over 37%. Because this bank took over the signature bank in a thunderstorm last year, it made this incident particularly noteworthy. As of the time of writing, New York Community Bank continued to decline by 13% on Thursday, and the entire US regional banking sector was in a state of panic.
On Thursday morning, Aozora Bank, located in Tokyo, Japan, disclosed that due to losses related to US commercial real estate, the company expects a net loss of 28 billion yen (approximately 1.359 billion yuan) for the fiscal year ending in March this year, compared to a previously expected profit of 24 billion yen.
Qingkong Bank also announced that Kei Tanikawa, President and CEO, will resign, effective April 1st. Affected by this news, the stock price of Qingkong Bank fell 21.49% on Thursday.
Here's a cool piece of knowledge: Unlike A-shares, Japanese stocks limit their daily price fluctuations based on the range of the stock price. For example, the closing price of Qingkong Bank on the previous trading day was 3257 yen, so today's drop of 700 yen has reached its limit. By Friday, Qingkong Bank could only drop another 500 yen at most.
Later on Thursday, Julius Baer, a Swiss private real estate company, announced that it had set aside nearly $700 million in loss provisions for a loan to Signa Group in Austria. At the same time, Baosheng announced the resignation of CEO Philipp Rickenbacher and the closure of the private equity credit business related to this loan.
On Thursday, Deutsche Bank also announced that it would make provisions for losses on US commercial real estate loans in the fourth quarter, a fivefold increase year-on-year to $123 million.
The troubles of commercial real estate in Europe and America may have just begun
The close relationship between banks and real estate is not difficult to understand: real estate developers and holders often engage in financing business with banks. So when the utilization and valuation of commercial real estate decline, banks also stand in the forefront of the storm.
In this series of events, there are also distinct characteristics: the impact of commercial real estate problems in Europe and America is more obvious for small and medium-sized banks and regional banks, but the impact on century old banks such as Baosheng and Deutsche Bank is relatively limited. On Thursday, the stock prices of these two banks also rose significantly due to various positive factors. From another perspective, the proportion of commercial real estate loans from small banks is also significantly higher than that of super large banks.
Therefore, when the Federal Reserve made it clear that it was not in a hurry to cut interest rates, people quickly turned their worried eyes to this sector.
According to the tracker of financial data provider Trepp, the United States alone has $2.2 trillion in commercial real estate loans due by the end of 2027. Faced with the sudden surge in US policy interest rates, many banks have also granted short-term extensions to some loans in the past two years, slightly pushing the liquidation date back.
Due to the fact that the cycle of commercial real estate loans often ranges from 5 to 10 years, most loans that are about to mature are issued during periods of high housing prices and low interest rates. The longer the Federal Reserve insists on not lowering interest rates, the more real estate holders will lie down under the pressure of borrowing and repaying old loans.
Anne Walsh, Chief Investment Officer of investment bank Guggenheim, pointed out in Davos last month that the pain in the office sector of commercial real estate is just beginning. She pointed out that small and medium-sized banks will face a large amount of refinancing of office building loans in the next 24 months. This situation can be seen as a rolling recession in the banking industry, which may last for a period of time.
The troubles of the United States radiate to Japan
In the past, when discussing the high interest rate issues faced by commercial real estate in the United States, the general focus was on the affordability of banks in the US region. But the Thunderstorm of Qingkong Bank highlights the troubles of commercial real estate in the United States, with the risk of "radiating overseas".
Qingkong Bank's asset size is close to $55 billion, making it a medium-sized regional bank in Japan and not a systemically important bank. This is a bank with a loan balance of $1.89 billion for office buildings in the United States, accounting for 6.6% of the entire bank's loan portfolio. Qingkong Bank emphasizes that its commercial real estate loans in the United States are concentrated in big cities such as Chicago and Los Angeles.
Behind this, it is also the figure of Japanese investors returning to the US commercial real estate market. According to MSCI data, as of mid December last year, Japanese investors spent a total of $3.7 billion on commercial real estate in the United States in 2023, doubling from the previous year and reaching a new high since 2016.
In addition to directly participating in real estate transactions, there are also many Japanese funds entering the US market through real estate funds. The most representative is the Japanese government pension investment fund, which has been involved in real estate funds since 2018. In 2023, it has committed to investing $500 million in real estate funds in Blackstone and Brookfield, respectively.