The New York Community Bancorp (NYCB) reported a large loss and lower dividend on Wednesday, triggering a decline in the company’s stock and shares of other regional banks.
During the 2023 banking crisis that sank multiple banks, including Silicon Valley Bank and Signature, NYCB emerged as a winner. The company acquired most of Signature Bank’s deposits and over a third of its assets last March. At the time, NYCB shares had shot up.
Speaking at an earnings call on Wednesday, NYCB CEO Thomas Cangemi said that fourth-quarter results were “impacted by the actions we undertook, including a $552 million provision for credit losses.”
In the bank’s earnings release, Mr. Cangemi said that the acquisition of Signature pushed NYCB’s total assets to $100 billion, which subjects them to “enhanced prudential standards, including risk-based and leverage capital requirements, liquidity standards, requirements for overall risk management, and stress testing.”
NYCB now has to set aside more capital to protect against future losses, which limits how much funds it can lend. The company reduced its Q4 dividend to build up capital. “These necessary actions negatively impacted our fourth quarter results,” the CEO said.
Alexander Yokum, an analyst at financial intelligence company CFRA, downgraded NYCB stock to “hold,” stating that “our diminished view reflects falling confidence in management’s ability to integrate its recent acquisitions in an efficient manner,” according to Financial Times.
On Wednesday, ratings agency Moody’s put all its assessments of NYCB under review for downgrade following the dismal Q4 results.
NYCB’s poor financial results negatively impacted the performance of regional banks. Shares of Valley National Bancorp declined by over 7.7 percent, Citizens Financial Group by 4.7 percent, and Regions Financial Corp by 4.15 percent.
The KBW NASDAQ Regional Banking Index, which reflects the performance of U.S. companies that do business as regional banks or thrifts, fell from 108.49 to 101.98 on Wednesday, a decline of 6 percent.
This was the index’s largest one-day fall since March 13 last year when the Signature Bank collapsed and triggered a panic.
Banks Under Stress
Some investors are worried that the cost of retaining customer deposits at regional banks would squeeze their net interest income (NII) and thus negatively affect profits. NII is the difference between a bank’s interest income and expenses associated with paying interest on its liabilities.Brian Mulberry, client portfolio manager at Zacks Investment Management, held a contrarian view of the panic in the market.
“The sector, in general, is subject to more of an emotional trade simply because depositors can be spooked into feeling like the collapse is imminent. But higher interest rates have been wearing on earnings and NII for a lot of these banks,” he said.
In an interview with Reuters, Dennis Dick, founder of Triple D Trading, said that the regional banking crisis from last year “never really got solved” since many banks are “still holding a lot of crappy mortgages.”
“Lot of these regional banks obviously still have issues, and I think this is just an eye-opener for the market to a certain extent today,” he said, referring to Wednesday’s crash in the stock prices of regional banks.
David Smith, a bank analyst, called Wednesday’s downward move a “knee-jerk” reaction that is “relatively constrained.”
“Banks are getting painted by the same brush as NYCB, which had a large loss and has given a poor guidance. I don’t think what we saw in the regional banking space in last March is anywhere on the cards right now,” he said.
In a November report, Fitch Ratings warned that it expects an “unfavorable U.S. operating environment for regional banks to persist into 2024.”
This would negatively affect the profitability of banks, it said, pointing to “weakness in loan and net interest income growth in 3Q23 across the 20 largest U.S. banks.”
“All U.S. banks will need to take defensive measures to conserve capital and provision for higher expected losses, given scarcer opportunities for revenue growth amid a restrictive rate environment, rising regulatory requirements and capital costs, and less benign credit quality,” Fitch said.
