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 larger than it had reported previously, and also announced the departure of its CEO and a member of the board of directors.
Shares of other regional banks also fell: Valley National Bank and Columbia Banking System both fell more than 2 percent. The KBW Regional Bank Index, which tracks the performance of U.S. regional banks, fell more than 1 percent.
The fall in shares of other banks is a sign that investors remain nervous about the risk of wider turmoil in the banking sector – almost a year after several smaller banks collapsed. But the fact that the declines at other regional banks were small suggests that NYCB’s problems are seen as unique to it.
“The market is nervous because of what we experienced last year,” said Christopher Marinac, an analyst and research director at Janney Montgomery Scott, a financial services firm.
What puts NYCB at risk?
NYCB appeared to be one of the winners of last year’s regional banking crisis, having acquired most of the assets of collapsed Signature Bank, 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 greater regulatory scrutiny, forcing it to increase its reserves, and quickly.
NYCB said the largest loss reported Thursday was $2.4 billion in so-called goodwill, essentially a catch-all financial category that businesses of all types use to describe assets that cannot be easily priced or sold. NYCB did not provide details on the reason for this depreciation.
The current crisis at NYCB is a consequence of how regulators reacted a year ago, when they “inexplicably approved several quick mergers,” said Dennis M. Kelleher, president and CEO of Better Markets, a group that seeks to strengthen banking regulations. .
How does this affect consumers?
NYCB, based in Hicksville, New York, has a national presence, in part through its acquisition of the assets of Signature Bank, 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 residential mortgage servicers, which exposes the bank to weaknesses in the housing market, particularly in an era of persistently high interest rates.
When Silicon Valley Bank collapsed last March, fears grew that a broader run on banks could threaten the sector, as it did during the 2008 financial crisis. The health of banks like NYCB, a major New York area lender, is closely monitored.
Although investors reacted strongly to the news on Thursday, customers should worry less about their accounts and deposit insurance. Each depositor is protected by government insurance of up to $250,000.
The bank announced on February 6 that it had $10 billion set aside to provide its customers with extensive deposit insurance, and that insured and guaranteed deposits represented more than 70% of all deposits. The company still has significant cash and deposits, which at $83 billion as of February 5 was higher than at the end of 2023.
Investor reaction Friday is the latest sign that regional banks are struggling to emerge from last year’s crisis. Regional banks like NYCB have more exposure to commercial real estate than big banks, and high vacancy rates in office buildings after the rise and sustainability of remote work have helped drive down property values. commercial real estate. This struggling market was a major factor in NYCB’s most recent woes, which were exacerbated by high interest rates.
Where does NYCB go from here?
NYCB continues to face a challenging financial and regulatory environment. It could raise capital by selling assets or choosing not to refinance certain loans, thereby writing them off. Raising capital would help NYCB better meet regulatory requirements, but it would also give it the opportunity to diversify beyond real estate.
The adjustment is part of the growing challenges the bank faces as it adapts to a new regulatory environment, with agencies like the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency taking a closer look at regional banks since last year. crisis, said Mr. Marinac.
“It’s a failed transition, but one that can still be successful,” he said.
