FirstFT: Bank losses revive concerns over US commercial real estate

Stay informed with free updates

This article is an on-site version of our FirstFT newsletter. Sign up to our Asia, Europe/Africa or Americas edition to get it sent straight to your inbox every weekday morning

Good morning. Mounting losses from banks in the US, Asia and Europe have rekindled concerns about weakness in the US commercial property market, a sector that has been under pressure from lower occupancy levels and higher interest rates.

Regional US lender New York Community Bancorp on Wednesday revealed it had taken large losses on loans tied to commercial property, while both Japan’s Aozora Bank and Deutsche Bank yesterday warned about the risks from their exposure to US real estate.

“We expect evidence of distress to ramp up this year as loan extensions end,” said Kiran Raichura, deputy chief property economist at Capital Economics.

Aozora forecast its first full-year loss since 2009, causing shares in the midsized lender to fall by their maximum limit yesterday — a drop of more than 21 per cent. The bank’s shares had been trading close to a five-year high ahead of the announcement.

But analysts in Japan said Aozora had particularly high exposure to the US market. “US [commercial real estate] is not likely to present a systemic risk, given that it accounts for less than 0.1 per cent of loans at the big Japanese banks which disclose this exposure,” said Makoto Kuroda, an analyst at Goldman Sachs in Tokyo.

Here’s more on the fallout from rising stress in the American commercial property market.

And here’s what I’m keeping tabs on today and over the weekend:

Economic data: The US provides its February employment update, while France reports monthly industrial production figures.
Tech: Apple will release its Vision Pro headset to consumers in the US today.
Results: Tata Motors, Bank of India, ExxonMobil, Chevron, Mitsui & Co and Panasonic are among the companies reporting today.
Music: The 66th Grammy Awards take place in Los Angeles on Sunday night (local time).

How well did you keep up with the news this week? Take our quiz.

Five more top stories

1. Narendra Modi’s government has promised to increase spending on railways, airports and other infrastructure to a record level as it unveiled its final interim budget before parliamentary elections this year. Finance minister Nirmala Sitharaman said in her budget address that New Delhi would spend Rs11.11tn ($134bn) in the coming fiscal year and estimated economic growth of 7 per cent. Here’s more on New Delhi’s plans.

Pakistan: As Imran Khan languishes in a Pakistani jail, the former prime minister’s embattled party is turning to unconventional methods including artificial intelligence and rallies on TikTok to mobilise ahead of next week’s general election.

2. Joe Biden has approved financial sanctions on Israelis responsible for “extremist settler violence” against Palestinian civilians in the West Bank. The sanctions mark a rare move by Washington to target the citizens of an allied country, amid rising tensions between the US and Israel over a two-state solution in the region.

3. The EU has agreed a deal on a €50bn financial support package for Ukraine after Hungarian Prime Minister Viktor Orbán rescinded his veto on the aid. The compromise, reached at the start of an emergency EU summit, came after an unprecedented campaign of pressure on Hungary, the bloc’s only member that has kept friendly relations with Russian President Vladimir Putin since he launched his full-scale invasion of Ukraine.

4. South Korean chipmaker SK Hynix has chosen the state of Indiana for a cutting-edge facility in the US that will give a major boost to the Biden administration’s efforts to bring more of the AI chip supply chain on to home soil. SK Hynix’s investment suggests US efforts to reduce dependence on Taiwan-based manufacturing, amid geopolitical tensions with China, are beginning to bear fruit.

5. Many of the world’s biggest carmakers are buying aluminium produced by victims of forced labour in China’s Xinjiang region, according to new research by Human Rights Watch. Their report shows that nearly 10 per cent of the world’s aluminium supply comes from Xinjiang and details how the supply chains of multinational companies could be implicated in Beijing’s long-running campaign of repression.

News in-depth

A Chinese coastguard vessel viewed from a Philippine coastguard ship near the Second Thomas Shoal © Jim Gomez/AP

A bitter exchange between China and the Philippines last month over Taiwan’s presidential election marked the latest episode in an escalating dispute between the two countries. Manila has taken a more assertive stance under President Ferdinand Marcos Jr. against Beijing’s coercive actions in the disputed waters of the South China Sea, while a growing wave of anti-China public opinion in the Philippines could deepen the discord.

We’re also reading . . .

Evergrande’s implosion: Beijing’s policymakers can do a better job in grappling with a property crisis than the Japanese and Americans initially did with their own financial rot, writes Gillian Tett.
FT Magazine: Fundamental questions about ovaries may unlock longer human lifespan. Philanthropist Nicole Shanahan is spending $100mn to find answers.
Tech Exchange: Pinterest’s chief executive Bill Ready talks to the FT about how social media became so toxic and how we can fix it.

Chart of the day

US businesses in China are still worried about geopolitical tensions and new data laws, according to the American Chamber of Commerce in China. The chamber’s annual survey also showed that China’s industrial overcapacity was emerging as an issue for some sectors, a challenge that AmCham said was “here to stay”.