Japan’s Aozora loses 33% of its value in two-day stock meltdown

JAPANESE lender Aozora Bank plunged for a second straight day after saying it would have its first loss in 15 years because of bad loans tied to United States property.

The company’s two-day tumble wiped out 33 per cent of its value, equivalent to 128 billion yen (S$1.2 billion) in market capitalisation.

“The situation in US commercial real estate is terrible,” said Yasuo Sakuma, president of Libra Investments. “Aozora really surprised the market. Once you do something like that, you’re going to have a tough time.”

Aozora loaned aggressively in the US, betting that the market for offices would provide safe and stable returns. When Covid hit and people began working from home in large numbers, prices for commercial property cratered, upending the bank’s strategy.

This has made it a target for short sellers. The stock is the second-most shorted on the Nikkei 225 Average.

“It’s almost a failure in risk management that they had this much exposure to a non-core market,” said Pri de Silva, a senior analyst at Bloomberg Intelligence.

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The bank lacks the scope of Japan’s megabanks and also the geographic strength of the country’s regional banks. That pushed it into a strategy where about one-third of its lending was to overseas borrowers.

Because of its relatively small size, the bank has also pursued Internet deposits. Retail deposits account for about 64 per cent of the bank’s core funding and of that more than 70 per cent comes via the Internet. BLOOMBERG