New York Community Bancorp Inc.’s continued its freefall Thursday as it triggered the steepest drop in regional-bank stocks since the collapse of Silicon Valley Bank.
New York Community Bancorp’s
NYCB,
stock sank 12% in morning trading Thursday, putting it on track for the lowest close since July 2000.
The bank led steep losses in the banking sector with the SPDR S&P Regional Banking ETF
KRE
down by 6.1% on Thursday as its slide continued from the previous session.
The KRE index is now down 10.9% the past two days, the biggest 2-day selloff since it tumbled 16.2% over the two sessions ended March 13, 2023 on the heels of the collapse of Silicon Valley Bank.
The trouble began early Wednesday, when New York Community Bancorp posted a surprise loss and cut its dividend, sending the shares down by 37% in the largest one-day drop in its history. The bank slashed its dividend to 5 cents a share from 17 cents a share and also took a $185 million loss on two loans, including an office loan.
While some on Wall Street have said the issues appear to be contained to the bank’s specific challenges to meet capital requirements, investors seem to be betting that New York Community Bancorp’s problem with one office loan could trigger losses at other lenders.
The office-space situation has been at the forefront as workers remain at home and the value of office space loans potentially weighs on regional banks with exposure to harder-hit markets such as San Francisco, Washington, D.C., and New York City.
Western Alliance Bancorp
WAL,
dropped by 11.6%, Valley National Bancorp
VLY,
moved lower by 10.7%, Metropolitan Bank Holding Corp.
MCB,
fell 14.4% and BankUnited Inc.
BKU,
dropped by 8.5%.
Zions Bancorp
ZION,
dropped by 8%, Webster Financial Corp.
WBS,
moved lower by 6.7%, Pinnacle Financial Partners Inc.
PNFP,
dropped by 9.6%, First Foundation Inc.
FFWM,
dropped by 8% and Eagle Bancorp Inc.
EGBN,
dropped by 6.9%.
Citi banking analyst Keith Horowitz said New York Community Bancorp’s results “were much worse than even the most bearish outlook” but that the issues with the lender are “isolated” with “no read-through to other names.”
Moody’s Investors Service has placed all long-term and short-term ratings and assessments of New York Community Bancorp Inc. and its Flagstar Bank NA unit on review for a downgrade from its current rating of stable, the ratings agency said late Wednesday.
Moody’s cited the bank’s “unanticipated loss content in its New York office and multifamily properties, weak earnings, material decline in its capitalization and high and growing reliance on wholesale funding.”
While the bank’s acquisition of selected assets of Signature Bank improved its capitalization and funding profile, the same metrics deteriorated to pre-acquisition levels as of Dec. 31, partly because the bank now must meet Category IV regulatory requirements of being a bigger bank with $100 billion to $250 billion of assets, Moody’s said.
Moody’s said it “expects capitalization and funding 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, which is ahead of the FactSet consensus estimate of $2.76 billion.
Net interest income reflects a bank’s profit from loans minus money it pays out in the form of interest for savings accounts.
Crunching 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 above his prior forecast of $2.7 billion.
Wedbush raised its 2024 earnings-per-share estimate for New York Community Bancorp to 80 cents a share from 65 cents a share, “owing mainly to higher average earning asset and net interest income assumptions following the company’s guidance update.”
Wedbush’s underperform rating on New York Community Bancorp is based on the bank’s above-average commercial-real-estate exposure and the risk posed as these loans mature or reset/reprice at higher rates, he said.
Jefferies analyst Casey Haire downgraded New York Community Bancorp to hold from buy and cut the bank’s price target to $6 a share from $13 on the bank’s unexpectedly fast Category IV bank compliance.
He cut his 2024 profit estimates for the bank by about 30%.
“NYCB’s actions taken thus far are a solid step forward, but impair profitability significantly given a need to run with higher capital/liquidity/reserves while trailing Cat IV peers modestly,” Haire said. “We expect the path to improved profitability will take years while credit risk remains an overhang.”
Raymond James analyst Steve Moss downgraded New York Community Bancorp to market perform from strong buy because its outlook changed unexpectedly.
“The announced repositioning significantly reduces the benefit of acquiring Signature Bank from the FDIC and highlights that regulatory rules for crossing $100 billion in assets is considerably more punitive especially given the dividend cut and level of reserve build that occurred this quarter,” Moss said.
Along with its net interest income projection, New York Community Bancorp said it expects net interest margin of 2.4% to 2.5% — below the analyst estimate of 2.55%. However, its outlook includes actions to increase its balance sheet liquidity and regulatory compliance.
It’s also projecting loans to drop by 3% to 5% in 2024, while its deposits are expected to increase by 3% to 5%.
The bank expects cash and securities to increase by $7.5 billion on a combined basis in 2024.
Also read: Banks’ office-loan exposure remains a ‘mixed bag’ as lenders manage through downturn
Tomi Kilgore contributed to this story.
