The Latest York Community Bank (NYCB) headquarters in Hicksville, Latest York, US, on Thursday, Feb. 1, 2024.
Bing Guan | Bloomberg | Getty Images
Embattled lender Latest York Community Bank disclosed a litany of economic metrics previously 24 hours in a bid to assuage skittish investors.
But one of the crucial resources for any bank appears to be in brief supply for NYCB these days: confidence.
The regional bank late Tuesday said that deposits were stable at $83 billion and that the firm had ample resources to cover any possible flight of uninsured deposits. Hours later, it promoted chairman Alessandro DiNello to a more hands-on role in management.
The moves spurred a 6% jump Wednesday in NYCB shares, a small dent within the stock’s greater than 50% decline because the bank reported fourth-quarter results last week. Shares of the Hicksville, Latest York-based lender resumed their decline in premarket trading Thursday, falling 6.9%.
“There is a confidence crisis here,” said Ben Emons, head of fixed income at NewEdge Wealth. “The market doesn’t have belief on this management.”
Amid the freefall, rankings agency Moody’s cut the bank’s credit rankings two notches to junk, citing risk management challenges while the firm searches for a pair of key executives. Making matters worse, NYCB was hit with its first shareholder lawsuit Wednesday over the share collapse, alleging that executives misled investors in regards to the state of its real estate holdings.
The sudden decline in NYCB, previously deemed one in every of last yr’s winners after acquiring the assets of Signature Bank, reignited fears over the state of medium-sized American banks. Investors have nervous that losses on among the $2.7 trillion in commercial real estate loans held by banks could trigger one other round of turmoil after deposit runs consumed Silicon Valley Bank and Signature last March.
Real estate
Last week, NYCB said it was forced to stockpile much extra cash for losses on offices and apartment buildings than analysts had expected. Its provision for loan losses surged to $552 million, greater than 10 times the consensus estimate.
The bank also slashed its dividend by 71% to conserve capital. Corporations are frequently loath to chop dividends because investors favor firms that make regular payouts.
The NYCB results sent shares of regional banks tumbling because that group plays a comparatively large role within the country’s commercial real estate market in comparison with the megabanks, while generally reserving less for possible defaults.
Shares of Valley National, one other lender with a bigger weighting to commercial real estate, have declined about 22% previously week, for example.
NYCB’s results “shifted investor sentiment back towards the chance of an acceleration in CRE nonperforming loans and loan losses over the course of 2024,” Morgan Stanley analyst Manan Gosalia wrote Wednesday in a research note.
Despite a suddenly low valuation, “the perceived risk tied to all things commercial real estate can also be prone to weigh on investor appetite to step in,” Bank of America analyst Ebrahim Poonawala wrote Wednesday. He rates NYCB “neutral” and has a $5 price goal.
Office buildings are at greater risk of default due to lower occupancy rates with the rise in distant and hybrid work models, and changes in Latest York’s rent stabilization laws have made some multifamily dwellings plunge in value.
“People thought that office space is where the stress is; now we’re coping with rent-controlled properties in Latest York City,” Emons said. “Who knows what’s going to occur next.”
Institutions ‘stressed’
Emons noted that, very similar to through the March tumult, speculators have piled into trades betting that NYCB shares would decline further.
Specifically, activity for put options that repay if NYCB stock falls to $3 or lower have surged, he said. A put is a financial contract that offers the customer the precise to sell a stock at a predetermined price and inside a selected time.
On Tuesday, Treasury Secretary Janet Yellen said she was “concerned” about losses in commercial real estate, but that bank regulators were working to be certain that that the economic system would adjust.
“I feel it’s manageable, although there could also be some institutions which can be quite stressed by this problem,” Yellen said, declining to discuss any specific bank.
That jibes with the view of Wells Fargo analysts that regulators are prone to take a more critical stance on reserving for possible loan losses after the NYCB flare up.
“A tougher take a look at credit likely results in more write-offs, which may result in more capital needs,” wrote Wells Fargo analysts led by Mike Mayo.