Shares of New York Community Bank fell more than 25 percent on Friday, a day after the lender said its fourth-quarter loss was $2.4 billion more than previously reported and also announced the departure of its CEO and a board member.
Shares of other regional banks were also lower: Valley National Bank and Columbia Banking System both fell more than 2 percent. The KBW Regional Bank Index, which tracks the performance of American regional banks, fell more than 1 percent.
The decline in other banks’ shares is a sign that investors are still nervous about the possibility of bigger problems in the banking sector – almost a year after several small banks collapsed. But the fact that the declines at other regional banks were small suggested that NYCB’s problems are considered unique to the bank.
“The market has become nervous because of what we went through last year,” said Christopher Marinac, analyst and research director at Janney Montgomery Scott, a financial services company.
What endangered NYCB?
NYCB appeared to be one of the winners of last year’s regional banking crisis after it acquired most of the assets of Signature Bank, which collapsed along with Silicon Valley Bank and First Republic Bank.
The acquisition allowed NYCB to grow to more than $100 billion in assets, but it also subjected it to increased regulatory scrutiny, which meant it had to increase its reserves, and quickly.
NYCB said the larger loss reported Thursday was a $2.4 billion hit to what is known as goodwill, essentially a general financial category that companies of all types use to describe assets that cannot be easily valued or sold . NYCB did not provide any details on the reason for this impairment.
The current crisis at NYCB is a result of the way regulators responded a year ago, when they “inexplicably approved multiple quick mergers,” said Dennis M. Kelleher, the president and CEO of Better Markets, a group that seeks stricter banking rules. .
What consequences does this have for the consumer?
Based in Hicksville, NY, NYCB has a national presence, in part due to its acquisition of Signature Bank’s assets, and operates more than 400 branches under brands including Flagstar Bank and Atlantic Bank of New York. Flagstar is one of the nation’s largest mortgage lenders, leaving the bank exposed to weaknesses in the housing market, especially at a time of persistently high interest rates.
When Silicon Valley Bank collapsed last March, fears grew of a broader run on banks that could have threatened the sector as it did during the 2008 financial crisis. The health of banks like NYCB, a major lender in the New York region, is being closely watched.
While investors reacted strongly to the news on Thursday, customers should be less concerned about their accounts and insuring their deposits. Each depositor is protected by government insurance up to $250,000.
The bank said on Feb. 6 that it had set aside $10 billion to offer customers comprehensive deposit insurance, and that insured and collateralized deposits represent more than 70 percent of all deposits. The company continues to have strong liquidity and deposits, which at $83 billion as of February 5 were higher than at the end of 2023.
The reaction from investors on Friday is the latest sign that regional banks are struggling to put last year’s crisis behind them. Regional banks like NYCB have more exposure to commercial real estate than larger banks, and high vacancy rates in office buildings following the rise and continued power of remote work have contributed to a decline in commercial real estate values. That floundering market has been a major driver of NYCB’s latest woes, which have been exacerbated by high interest rates.
Where does NYCB go from here?
NYCB continues to face a difficult financial and regulatory environment. It could raise capital by selling assets or choosing not to refinance some loans and writing them off as losses. Raising capital would help NYCB better meet regulatory requirements, but it would also give it an opportunity to diversify beyond real estate.
The adjustment is part of the growing pains the bank is enduring as it adapts to a new regulatory environment, with agencies like the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Monet looking more closely at regional banks since last year. crisis, said Mr Marinac.
“It’s a transition that has taken a lot of effort, but it can still be successful,” he said.