- New York Community Bancorp's stock has fallen 60% in recent days, hitting its lowest point in nearly 27 years.
- Local banks reported disappointing financial results, raising concerns about commercial real estate troubles.
- Local banks found themselves in financial trouble last year as interest rate hikes hit their bond and CRE portfolios.
A small financial institution is facing a fire sale of its own stock due to stability concerns, echoing last year's regional bank troubles that fueled fears of a full-blown financial crisis and commercial real estate meltdown. .
Here's an overview of what happened at New York Community Bancorp and why it matters.
disappointment in performance
NYCB is the parent company of Flagstar Bank, one of America's largest regional lenders with 420 branches and the second largest lender to the multifamily housing sector.
In its January 31 earnings report, the company reported a net loss of $260 million in the fourth quarter, after posting a net income of $199 million in the previous quarter.
NYCB also set aside $552 million to cover loan losses. This was a significant increase from $62 million in the third quarter. Net charge-offs, or irrecoverable debt, were primarily due to co-op and office loans and totaled $185 million, compared to $24 million in the third quarter.
The company also lowered its dividend from 17 cents to 5 cents to increase capital.
The bank's efforts to improve its financial health have been driven in part by two acquisitions in the past 18 months that have pushed its assets to more than $100 billion. It bought deposits and some loans from Signature Bank, which collapsed last spring along with Silicon Valley Bank and Silvergate.
Banks of this size will be exposed to greater regulatory insight. surely, reported by bloomberg Regulators are reportedly asking lenders to improve their capital positions.
According to Bloomberg, Moody's downgraded NYCB's credit rating to junk on Tuesday. Credit rating agencies cited a myriad of financial risks, as well as governance issues, following the departure of audit and risk executives in recent months.
NYCB's financial deterioration and Moody's write-down led investors to send the company's stock price down 60% in five days, its lowest level since 1997, and its market capitalization fell by $4.5 billion.
The central bank of New York sought to reassure Wall Street on Tuesday by releasing unaudited financial information as of February 5. The bank's deposits have grown to about $83 billion this year, with insured and collateralized deposits accounting for 72% of the total.
It also reported total liquidity of $37.3 billion, more than uninsured deposits, and approximately $17 billion in cash.
“We took decisive action in the fourth quarter to strengthen our balance sheet and strengthen our risk management processes,” Chief Executive Officer Thomas Cangemi said in a statement, adding that the company's size and complexity have led to significant changes in its size and complexity. He added that the goal is to strengthen risk management in line with the increase in risk.
He also noted that NYCB is working to bring in a new chief risk officer and chief audit executive.
Why are investors worried?
NYCB's unexpected losses, coupled with its decision to cut dividends to shareholders and take large provisions for bad debts, put the company's loans and assets in the commercial and multifamily real estate sectors at risk. This is fueling concerns that there may be.
No doubt investors are wary of this after small financial institutions were caught off guard by the Federal Reserve's rapid interest rate hikes last year.
This increase hurt the value of our fixed income and commercial real estate portfolios. Commercial real estate in particular is under pressure from continued work from home, tightening credit as lenders withdraw, and rising borrowing costs, all of which are weighing on asset values.
Treasury Secretary Janet Yellen told lawmakers this week that she expects the pressure on commercial real estate will be “stressful” to property owners, but expects it to be manageable, Bloomberg reports. said.
In other words, investors are worried that NYCB will be the canary in the coal mine for local banks and commercial real estate, and are bracing for the next domino to fall.
