CNN reports from New York.
On Wednesday, the Federal Reserve dropped a sentence that had been in every meeting statement since three banks failed last spring: the “US banking system is sound and resilient.
Coincidentally, many individuals were wondering that day if the banking system was actually robust and resilient, as shares of New York Community Bancorp (NYCB) fell, eventually closing down 38% on Wednesday. On Thursday, the stock fell an additional 11%
The big losses came after the regional lender recorded a sudden loss of $ 252 million in the last quarter, compared to the profit of $ 172 million in the fourth quarter of 2022. The company recorded 552 million dollars in loan losses, a significant increase of $ 62 million in the previous quarter.
Word soon travelled on Wall Street that the regional bank was under duress, causing a wave of selling in other bank stocks due to fears of contagion.
The KBW Regional Banking Index fell 6% on Wednesday. However, by Thursday, selling pressure had subsided, with the index down 2% at the market close.
How New York Community Bancorp got here
NYCB stood out during last year’s banking turmoil. Unlike many other regional banks, it retained the large bulk of its deposits. That left them with enough cash to buy about $40 billion in assets, including $13 billion in loans, from the now-defunct Signature Bank at a significant discount.
The deal increased NYCB’s total assets beyond $100 billion. Crossing that threshold is crucial for banks because it mandates that they set aside more capital to protect against future losses. However, this limits the amount of money that banks can loan out.
The transition to comply with the new standards weighed heavily on the bank last quarter, according to NYCB CEO Thomas Cangemi on the company’s earnings call on Wednesday.
He also stated that the banks’ losses were due to improper office block financing.
Chris Marinac, director of research at Janney Montgomery Scott, told CNN he is not afraid that NYCB is on the verge of failure.
“Investors are spooked since they thought NYCB was exonerated because they won a failed bank,” he claimed. “In reality, NYCB is adapting to higher standards and trying to be early and not delay or slow play being a large bank above $100 billion.”
NYCB declined to comment on the bank’s stock fluctuation since Wednesday, including its
An overreaction or a justified reaction?
The selloff in other regional bank equities is “likely overdone given idiosyncratic factors tied to NYCB,” Bank of America analysts wrote in a report on Thursday.
“However, higher losses tied to commercial real estate (CRE) office exposure, increase in criticised loans tied to multi-family CRE are a reminder of ongoing credit normalisation that we are likely to witness across the industry,” according to experts.
That’s having a significant impact on Japan’s Aozora Bank, which stated Thursday that bad loans connected to US branches contributed to its expected annual loss of 28 billion yen ($190 million) last year. The shares closed 26% down on Thursday.
It will certainly be some time before NYCB can recoup many of its losses from this week. Will the misery continue for other bank stocks?
Marinac isn’t really bothered.
In May of last year, when First Republic failed two months after Signature and Silicon Valley Bank, “banks traded very weakly for several days, then calm and rational investors came back in and stock prices stabilised,” Marinac stated. “I predict the same here; NYCB is an opportunity at [Thursday’s] pricing, and we continue to promote the company.