Bancorp Inc. continued New York was in freefall on Thursday, causing the biggest decline in regional bank stocks since the collapse of the Silicon Valley bank.
New York Community Bank NYCB,
The stock fell 12% in morning trading Thursday, putting it on track for its lowest close since July 2000.
The bank led heavy losses in the banking sector with the SPDR S&P Regional Banking ETF KRE falling 6.1% on Thursday while continuing its decline from the previous session.
The KRE is now down 10.9% over the past two days, the largest two-day selloff since it fell 16.2% over the two sessions ending March 13, 2023 in the wake of the Silicon Valley bank collapse.
The trouble started early Wednesday, when New York Community Bancorp reported a surprise loss and cut its dividend, sending shares plunging 37% in the biggest single-day decline in its history. The bank cut its dividend to 5 cents per share from 17 cents per share, and also incurred a loss of $185 million on two loans, including an office loan.
While some on Wall Street said the problems appear to be limited to the bank's specific challenges in meeting capital requirements, investors appear to be betting that New York Community Bancorp's problem with one office loan could lead to losses at other lenders.
The office space situation has been at the forefront with workers staying home and the value of office space loans will likely impact regional banks with exposure to hard-hit markets like San Francisco, Washington, D.C. and New York City.
western alliance bancorp wall,
Valley National Bancorp VLY fell 11.6%.
Metropolitan Bank Holding Corp. (MCB) shares fell by 10.7%.
BankUnited Inc. shares fell. By 14.4%. Bako,
It decreased by 8.5%.
Zion Bancorp Zion,
Decreased by 8%, Webster Financial Corp. WBS,
Pinnacle Financial Partners Inc stock fell. PNFP by 6.7%,
Down 9.6%, First Foundation Inc. FFWM,
Eagle Bancorp Inc. fell 8%. EGBN,
Decreased by 6.9%.
Keith Horowitz, a banking analyst at Citi, said New York Community Bancorp's results were “significantly worse than even the most bearish forecasts” but the issues with the lender were “isolated” with “no read on other names.”
Moody's Investors Service has assigned all long- and short-term ratings and ratings for New York Community Bancorp Inc., the ratings agency said late Wednesday. Its Flagstar Bank NA unit is under review for a downgrade to its current stable rating.
Moody's noted the bank's “unexpected loss content in its New York office and multifamily properties, weak earnings, material decline in its capitalization and heavy and increasing reliance on wholesale financing.”
While the bank's acquisition of select assets from Signature Bank improved its capitalization and funding profile, the same metrics had deteriorated to pre-acquisition levels as of December 31, in part because the bank must now meet Category IV regulatory requirements for being a larger bank. With a capital of $100. Moody's said assets range between $1 billion and $250 billion.
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 to range from $2.8 billion to $2.9 billion, beating the FactSet consensus estimate of $2.76 billion.
Net interest income reflects a bank's profit on loans minus the money it pays in interest to savings accounts.
Analyzing the new numbers, Wedbush analyst David J. Chiaverini reiterated his underperform rating for New York Community Bancorp but said the new net interest income outlook is higher than his previous forecast of $2.7 billion.
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 higher average asset earnings and net interest income assumptions following updated company guidance.”
He said Wedbush's underperforming rating on New York Community Bancorp is based on the bank's exposure to above-average commercial real estate and the risks these loans pose when they mature or are reset/repriced at higher rates.
Jefferies analyst Casey Haire downgraded New York Community Bancorp to hold from buy and lowered his price target for the bank to $6 per share from $13 on the bank's unexpectedly rapid Class IV compliance.
He reduced his estimates of the bank’s profits for the year 2024 by about 30%.
“The actions taken by the BONY so far are a strong step forward, but significantly impair profitability given the need to operate with higher capital/liquidity/reserves while trailing Tier 4 peers modestly,” Heery said. “We expect the path to improved profitability to take years while credit risk remains a heavy burden.”
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 the Signature Bank acquisition from the FDIC and highlights that the regulatory rules for crossing $100 billion in assets are far more punitive, especially given the earnings cut and level of reserve construction that has occurred,” Moss said. It happened this quarter.
Along with the net interest income outlook, New York Community Bancorp said it expects a net interest margin of 2.4% to 2.5% — below analyst estimates of 2.55%. However, its outlook includes measures to increase its balance sheet liquidity and regulatory compliance.
It also expects loans to decline by 3% to 5% in 2024, while its deposits are expected to increase by 3% to 5%.
The bank expects to increase cash and securities by $7.5 billion on a combined basis in 2024.
Read also: Banks' exposure to office loans remains a “mixed bag” as lenders manage through the recession
Tommy Kilgore contributed to this story.
