Aozora’s Surprise Loss Sends Ripples through Japan
ASMR
Investor jitters have spread to Japan as Aozora, the Japanese bank, forecasts a surprise loss resulting from increased loan-loss provisions.
The forecast caused Aozora’s stock to tumble by more than 20% in Tokyo. This comes closely after a similar warning from New York Community Bank (NYCB) that led to a 40% drop in its shares.
Aozora’s First Loss in 15 Years
Aozora revised its yearly net income forecast to an expected loss due to increased loan-loss provisions for U.S. commercial property. The bank also suspended its dividend, marking its first loss since 2009, according to Reuters.
NYCB and Banking Turmoil
NYCB had augmented its reserves and reduced its dividend as its assets crossed the $100B threshold with the acquisition of Signature Bank last year, which failed during last spring’s banking turmoil.
Impact on Regional Banking ETFs and Treasury Yields
Following these developments, regional banking ETFs (NYSEARCA:KRE) and others reported their worst performances since the banking turmoil of March last year.
Market Reaction and Global Implications
These concerns over banks sent Treasury yields lower on Wednesday, with traders anticipating more rate cuts due to financial sector instability. Deutsche Bank’s Jim Reid mentioned that these events “add to fears that the full consequences from higher interest rates are yet to materialize, particularly given the amount of debt that needs refinancing over 2024 and 2025.”
He further added, “This echoes the ‘race against time’ theme we discussed in our 2024 World Outlook, in that the risk of a funding accident is much higher than usual, since we’ve experienced the most rapid series of rate hikes since the early 1980s.” and that, “even if the major central banks are now done hiking rates, the impact of tighter policy is still impacting the economy and markets with a lag, so this is still a very important story as we move through 2024.”
