U.S. commercial property slowdown sparks fear in financial sector

The slowdown in the U.S. commercial property market is raising significant concerns for banks not only in the U.S. but also in Japan and Europe. The looming expiration of a major portion of property loans in 2024, totaling 720 trillion won, has triggered fears of potential insolvency among many. Recent earnings reports from various global banks have confirmed that the property market decline is negatively impacting their performance, leading to a sharp 50% decrease in the stock value of some banks within just two days.

The focal point of concern is New York Community Bancorp, a mid-sized American bank. On Thursday, its stock price plunged by 11.1%, following a staggering 37.7% drop the previous day. The catalyst for this decline was the revelation of the bank's exposure to high-risk loans linked to U.S. properties, mainly commercial office buildings. Japan's Aozora Bank, Germany's Deutsche Bank, and Swiss wealth management group Julius Baer swiftly followed suit, issuing warnings about their losses in U.S. commercial property loans. Aozora experienced a substantial 32.4% decrease in its share price over the past five days, prompting its governor to resign due to the incurred losses. Simultaneously, the head of Julius Baer also stepped down on the same day.

During the recent World Economic Forum, Anne Walsh, Chief Investment Officer for Guggenheim Investments, highlighted that the challenges emanating from the commercial property market are only in their initial stages, suggesting that the financial crisis scenario may endure for a considerable period.


Hyoun-Soo Kim kimhs@donga.com