Banks in the U.S., Japan and Switzerland announced losses tied to troubled real-estate lending.
The Wall Street Journal reports Commercial Property Losses Hammer Banks on Three Continents
Shares of New York Community Bancorp fell 11% Thursday, extending a steep slide that began a day earlier when the company disclosed troubles in its commercial property book and piled away millions of dollars for potential future losses. On Wednesday, it closed down 38%, its worst day on record.
Tokyo-based Aozora Bank shares fell more than 20% Thursday, the maximum allowed on a single day under stock-market rules, after it said losses in its U.S. office-loan portfolio will likely lead to a net loss for the year ending in March. It would be its first annual loss in 15 years. Its president will step down on April 1, the bank said.
In Switzerland, the private bank Julius Baer said Chief Executive Philipp Rickenbacher resigned after the company took a roughly $700 million provision on loans it said it may not get back from Austrian property landlord Signa Group. The group said it would shut down the unit that made the loans.
Also on Thursday, Deutsche Bank DBK said it increased loss provisions in its U.S. commercial loan book nearly fivefold from 2022’s fourth quarter to 123 million euros, equivalent to $133 million.
What ties them together: Banks are big lenders to real-estate owners and developers, putting them on the front line of the downturn in office-building use and falling valuations.
NY Community Bancorp Plunges
Bloomberg reports NY Community Bancorp Plunges as Real Estate Risks Jolt Market
New York Community Bancorp, one of the winners as regional lenders struggled and collapsed last year, plunged by a record as investors worried it’s now the harbinger of the industry’s next source of pain: commercial real estate.
The firm, which acquired part of Signature Bank last year, stockpiled cash as it contends with lending risks — including a pair of troubled loans for a co-op complex and office space — as well as stiffer regulation due to its size. The bank’s provision for loan losses surged to $552 million, shocking analysts and shareholders.
The stock fell as much as 46% Wednesday, and was down 38% at the close of New York trading. The KBW Regional Banking Index dropped 6%, its worst day since a deposit run toppled Silicon Valley Bank last March.
Timeliness Department
- Raymond James cut its rating on the bank to market perform from strong buy, with analyst Steve Moss writing in a note to clients that the quarterly results “will likely put the stock in the penalty box” until there’s “greater clarity around capital, credit and future business plans.”
- Moody’s Investors Service said it’s reviewing whether to lower New York Community Bancorp’s credit rating to junk after Wednesday’s developments.
US credit rating agencies remain less than useless. They only warn after the fact.
Time To Break Up The Credit Rating Cartel
Please consider a few excerpts from my post Time To Break Up The Credit Rating Cartel, written September 28, 2007.
The rating agencies were originally research firms. They were paid by those looking to buy bonds or make loans to a company. If a rating company did poorly it lost business. If it did poorly too often it went out of business.
Low and behold the SEC came along in 1975 and ruined a perfectly viable business construct by mandating that debt be rated by a Nationally Recognized Statistical Rating Organization (NRSRO). It originally named seven such rating companies but the number fluctuated between 5 and 7 over the years.
Establishment of the NRSRO did three things (all bad):
1) It made it extremely difficult to become “nationally recognized” as a rating agency when all debt had to be rated by someone who was already nationally recognized.
2) In effect it created a nice monopoly for those in the designated group.
3) It turned upside down the model of who had to pay. Previously debt buyers would go to the ratings companies to know what they were buying. The new model was issuers of debt had to pay to get it rated or they couldn’t sell it. Of course this led to shopping around to see who would give the debt the highest rating.The Solution is Amazingly Easy
Government sponsorship of organizations and intervention into free markets always creates these kinds of problems. The cure is not an executive shuffle, third party verification or half-measures and more regulation that mask over the issues by splitting functions within an organization. The SEC created this problem by creating the NRSRO. The problem is easily fixable. It’s time to break up the cartel by eliminating the rules that created it. Moody’s, Fitch, and the S&P; should have to sink or swim by the accuracy of their ratings just like everyone else. Ratings would be a lot better if corporations had to live or die by them. Free market competition, not additional regulation is the cure.
Current Model Less Than Useless
Any rating agency that gets paid on volume rather than accuracy is less than useless.
Those who want a true rating on an issue go to someone like Egan Jones. They do have to pay for the analysis, which is the way it used to be and still should be.
Instead the NRSRO whores get paid by volume instead of accuracy. We need to get rid of pigs and take away the trough.
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