Shares of New York Community Bancorp Inc. on Thursday triggered the steepest decline in regional bank stocks since the collapse of Silicon Valley Bank in March 2023, although the sector rebounded from earlier lows by the end of the session. .
NYCB Shares of New York Community Bancorp,
ended its second day of trading with a loss of 11%, closing at $5.75 per share. The stock had been trading as low as $5.51 per share earlier in the day.
In after-hours trading the stock gained 0.2%.
The bank’s swoon weighed on the financial sector, with the KRE SPDR S&P Regional Banking ETF down 3.1% and the KBW Bank BKX Index down 1.7%. The Select Financial Sector SPDR XLF ETF rose 0.2% as the overall market rose.
Previously, the KRE index fund had fallen 10.9% in the previous two days — the biggest two-day sell-off since it slumped 16.2% in the two sessions ended March 13, 2023, on the heels of the collapse of Silicon Valley Bank.
Investor Chris Whalen, president of Whalen Global Advisors, said New York Community Bancorp should have done a better job of getting the word out about the disappointing fourth-quarter results, but noted that his firm remains an owner of the shares.
“We still like the NYCB story and, in fact, bought more shares at the lows,” Whalen said in a post on his website. Of note for the bank was a 33% fourth-quarter decline in unrealized losses on securities to less than 5% of capital, “partly due to aggressive sales of legacy securities and partly due to rising interest rates. lower interest rates,” Whalen said.
The troubles for New York Community Bancorp began last Wednesday, when it posted a surprise loss and cut its dividend, sending its shares tumbling 37% for the biggest daily drop on record. The bank cut its dividend to 5 cents a share, from 17 cents previously, and also suffered a $185 million loss on two loans, including an office construction loan.
While some on Wall Street have said the problems appear to be contained in the bank’s specific challenges in meeting capital requirements, investors appear to be betting that New York Community Bancorp’s problem with an office loan could trigger losses at other lenders credit.
The office space situation is at the forefront as workers stay home and the value of office real estate loans potentially weighs on regional banks with exposure to hardest-hit markets such as San Francisco, Washington, D.C. and New York City.
At the closing bell, Western Alliance Bancorp WAL,
fell 7.6%, after falling nearly 12% earlier in the day.
Valley National Bancorp VLY,
fell 6.9%, Metropolitan Bank Holding Corp. MCB,
fell 6.8% and BankUnited Inc. BKU,
fell 5.8%.
Zions Bancorp ZION,
fell 6.3%, Webster Financial Corp. WBS,
down 4.7%, Pinnacle Financial Partners Inc. PNFP,
decreased by 6.3%, First Foundation Inc. FFWM,
down 5% and Eagle Bancorp Inc. EGBN,
fell 2.5%.
Macrae Sykes, portfolio manager of the Gabelli Financial Services Opportunities ETF GABF,
said the decline in financial stocks equates to an opportunity to buy bigger banks.
“We believe this real estate impact will be significant for smaller/regional banks and disproportionately less impactful for major banks due to lower concentration, sophisticated risk management and more conservative reserves,” Sykes said in an email.
Citi banking analyst Keith Horowitz said New York Community Bancorp’s results “were much worse than even the most bearish forecasts” but that the problems at the lender were “isolated” with “no readout for others names”.
Moody’s Investors Service has placed all long- and short-term ratings and ratings of New York Community Bancorp and its unit Flagstar Bank on review for a downgrade from its current rating of stable, the ratings agency said Wednesday evening.
Moody’s cited the bank’s “content of unexpected losses across its New York office and multifamily properties, weak earnings, material declines in its capitalization and high and growing reliance on wholesale financing.”
While the bank’s acquisition of select assets of Signature Bank has improved its capitalization and funding profile, the same metrics have worsened to pre-acquisition levels as of Dec. 31, in part because the bank now must meet regulatory requirements Category IV to be a larger bank with 100 dollars. billion to $250 billion in assets, Moody’s said.
Moody’s said it “expects capitalization and financing to remain under pressure.”
After the close of trading on Wednesday, New York Community Bancorp said it expects 2024 net interest income of $2.8 billion to $2.9 billion, higher than the FactSet consensus estimate of $2.76 billion. dollars.
Net interest income reflects a bank’s profit from loans minus the money it pays out in interest on savings accounts.
Analyzing the new numbers, Wedbush analyst David J. Chiaverini reiterated his underperform rating on New York Community Bancorp, but said its new net interest income outlook is higher than his previous forecast of $2.7 billion of dollars.
Wedbush raised its 2024 earnings per share estimate for New York Community Bancorp to 80 cents per share from 65 cents per share, “primarily due to assumptions of higher average earnings and net interest income following the update of the company’s guidelines”.
Wedbush’s underperform rating on New York Community Bancorp is based on the bank’s above-average exposure to commercial real estate and the risk posed when these loans mature or are reinstated and repriced at higher rates, he said.
Jefferies analyst Casey Haire downgraded New York Community Bancorp to abstain from buy and cut the bank’s price target to $6 per share from $13 due to unexpectedly rapid Category IV bank compliance.
He cut his 2024 profit estimates for the bank by about 30%.
“The actions taken thus far by NYCB represent a solid step forward, but significantly compromise profitability given the need to operate with higher capital/liquidity/reserves, modestly lagging behind Cat IV competitors,” Haire said. “We expect the path to improved profitability will take years while credit risk remains an obstacle.”
Raymond James analyst Steve Moss downgraded New York Community Bancorp to strong buy market performance because its outlook changed unexpectedly.
“The announced repositioning significantly reduces the upside of Signature Bank’s acquisition from the FDIC and highlights that the regulatory rules for exceeding $100 billion in assets are considerably more punitive, especially given the dividend cut and level of reserve build-up which occurred this quarter,” Moss said.
Along with the net interest income projection, New York Community Bancorp said it expects a net interest margin of 2.4% to 2.5% — lower than analysts’ estimate of 2.55%. However, its outlook includes actions to increase balance sheet liquidity and regulatory compliance.
Lending is also expected to decline 3% to 5% in 2024, while its deposits are expected to increase 3% to 5%.
The bank expects cash and securities to increase by $7.5 billion on a combined basis in 2024.
Read also: Banks’ exposure to office loans remains a “mixed bag” as lenders manage the downturn
Tomi Kilgore contributed to this story.