Traders work on the floor of the New York Stock Exchange (NYSE) on February 7, 2024 in New York City, USA.
Brendan McDiarmid | Reuters
lender in distress new york community bank In an effort to placate nervous investors, it released a flurry of financial indicators from the past 24 hours.
But trust, one of the most important resources for any bank, seems to be in short supply at NYCB these days.
The regional bank said late Tuesday that deposits remained stable at $83 billion and that it had sufficient resources to cover the potential outflow of uninsured deposits. Hours later, it promoted chairman Alessandro Dinero to a more hands-on role in management.
The move sent NYCB stock up 6% on Wednesday, narrowing the stock’s decline of more than 50% since it reported fourth-quarter results last week. On Thursday, the Hicksville, New York-based lender’s stock resumed its slide, dropping more than 6%.
“There’s a crisis of confidence here,” said Ben Emmons, head of fixed income at NewEdge Wealth. “The market doesn’t trust this management team.”
Amid the free fall, rating agency Moody’s downgraded the bank’s credit rating by two notches to junk, citing risk management challenges while the company searches for two key executives. To make matters worse, NYCB was hit with its first shareholder lawsuit on Wednesday over its plunging stock price, alleging management misled investors about its real estate holdings.
The sharp decline in NYCB, considered one of last year’s winners after the acquisition of Signature Bank’s assets, has reignited concerns about the state of mid-sized banks in the United States. Investors said losses on some of the bank’s $2.7 trillion in commercial real estate loans were further disrupted after Silicon Valley Bank and Signature were depleted in deposit runs last March. There were concerns that it would cause
real estate
The central bank of New York announced last week that it needed to stockpile far more cash than analysts expected in case of losses on office and apartment buildings. Reserves for loan losses soared to $552 million, more than 10 times the consensus estimate.
The bank also cut its dividend by 71% to conserve capital. Investors prefer companies that pay stable dividends, so companies are usually reluctant to cut their dividends.
The decline in regional bank stock prices following NYCB’s results is due to the fact that while the group plays a relatively large role in the domestic commercial real estate market compared to megabanks, they generally have to prepare for possible default. This is because there are few
For example, shares in Valley National, another lender with a heavy focus on commercial real estate, have fallen about 22% over the past week.
Morgan Stanley analyst Manan Gosalia said in a research note on Wednesday that NYCB’s results “switched investor sentiment back to the risk of accelerating CRE NPLs and charge-offs in 2024.”
Despite the sudden drop in valuations, “the perceived risk associated with commercial real estate in general is also likely to dampen investors’ appetite for intervention,” said Bank of America analyst Ebrahim Poonawalla. I wrote it on Wednesday. He rates NYCB as “neutral” and has a price target of $5.
Office buildings are at increased risk of default due to lower occupancy rates due to increased remote and hybrid work models, and changes to New York State’s rent stabilization law have caused the values of some apartment complexes to plummet.
“People used to think it was office space that was stressful, but now we’re dealing with rent-controlled properties in New York City,” Emmons said. “No one knows what will happen next.”
Educational institutions are ‘feeling stress’
Emmons noted that speculators are rushing into trades, betting that NYCB stock will fall further, just as it did during the March turmoil.
In particular, there has been a sharp increase in the number of put option trades, which provide a profit if NYCB stock falls below $3. A put is a financial contract that gives the buyer the right to sell a stock at a predetermined price within a specified period of time.
Treasury Secretary Janet Yellen on Tuesday called commercial real estate losses “concerning” but said banking regulators were working to adjust the financial system.
“Some institutions may be quite stressed by this issue, but I believe it’s manageable,” Yellen said, without citing specific banks.
It is the following view wells fargo Analysts expect regulators are likely to take a tougher stance on loan loss provisions after NYCB’s rally.
“A tough view on credit will likely lead to more write-downs, which could lead to more capital needs,” said Wells Fargo analysts led by Mike Mayo.
