NEW YORK–Mounting losses related to commercial loans are being felt by banks around the world.
Last week, shares in New York Community Bancorp plunged 38% after it reported a loss of $252 million for the last quarter. The regional lender set aside $552 million in the fourth quarter to absorb loan losses, up from $62 million in the previous quarter, according to CNN.
“The increase was driven partly by expected losses on a loan used to finance an office building,” the report added.
The lender helped drag the KBW Regional Banking Index down 6%, its biggest daily fall since last May — the same month California-based First Republic became the third U.S. banking casualty last year, according to CNN.
The index slid further later in the week and was down 4.8% as shares in NYCB, as well as other regional banks, suffered sharp losses. NYCB’s stock fell almost 13%, Banc of California 8%, and BankUnited 8%.
Office Buildings Lead to Losses
A big chunk of NYCB’s losses were tied to office buildings, it said in its earnings statement, CNN stated. The company’s CEO, Thomas Cangemi, referred to “general office weaknesses throughout the country” in a call with investors.
“Since the turmoil last Spring, investors and regulators have been on high alert for renewed stress among banks, homing in on their exposure to the ailing commercial real estate market,” CNN stated in its analysis. “The value of many buildings has plummeted as millions of workers have stuck with pandemic-era remote working, leaving vast tranches of office space vacant or underused. At the same time, historically high interest rates have made it harder for real estate developers — who often take out huge loans to finance projects — to make good on their repayments.”
Could Take Year or More
The reported added that the bank expects it will take another year or two for the U.S. office market to “stabilize” as more people returned to work in-person, and as the Federal Reserve moves from hiking interest rates to cutting them.
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