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New York Community Bancorp‘s share price gyrated wildly Thursday, falling to its lowest point in decades.
The surprise loss and drastic reserve increase that the bank announced Wednesday continued to drag down regional bank stocks for a second day, despite the defense arguments of Wall Street bank analysts.
NYCB stock fell 11% Thursday on more than 125 million shares trading volume, to close at $5.75, a level they haven’t seen since the year 2000. They fell 38% Wednesday, after the lender announced a half-billion reserve against loan losses on its commercial real estate loans—a move that analysts believe was prompted by regulators. Ratings agency Moody’s put the bank’s credit rating on review for a downgrade Wednesday.
As traders remembered last year’s regional bank crisis, Wall Street also was reviewing its assessment of the stock. Raymond James and Jefferies downgraded the shares to the equivalent of Hold. J.P. Morgan, however, said the selloff was “overdone” and maintained a Buy rating, reiterating NYCB remained its top pick for 2024; it lowered NYCB’s price target to $11.50—implying a 78% upside to Wednesday’s $6.47 closing price—from its previous target of $14.
As investors and analysts digested the fallout, barometers like the SPDR S&P Regional Banking ETF sank 3% Wednesday, and then another 3% on Thursday.
The loan reserves of other regional banks are being scoured by analysts in search of any that regulators might deem wanting.
While J.P. Morgan’s Kabir Caprihan wrote Thursday that he didn’t believe we’re seeing a repeat of 2023, he noted that reserves on office real estate loans were lower than most peers at two banks:
Zions Bancorp
and
M&T Bank.
At year end, the loss reserves on office properties were 3.8% of loans at Zions and 4.4% at M&T, by the analyst’s tally, compared with 8% at New York Community Bank after this week’s accrual.
Shares of Zions fell 6%, Thursday, while those of M&T fell 5%. They didn’t immediately reply to questions about the J.P. Morgan analysis.
Other regional banks sinking on Thursday included
Western Alliance Bancorp,
down 8%, and
Citizens Financial Group,
down 5%.
A second bank warned about its U.S. office loans overnight.
Japan’s
Aozora Bank
said it expects to post a net loss for the fiscal year, due to higher provisions for U.S. office loans. It was a sharp revision to a loss of 28 billion yen ($190.5 million), from a previous forecast for profit of 24 billion yen. The stock plunged 21% Thursday.
“Due to higher U.S. interest rates and a shift to remote work accelerated by Covid-19, the U.S. office market continues to face adverse conditions combined with extremely low liquidity,” the bank said in a statement.
The bank said it may take another year or two for the market to stabilize.
It also expects to book a 41 billion yen loss in its securities portfolio in the second half of the fiscal year, ending March 31, mainly from foreign bonds and again due to high U.S. interest rates.
Aozora’s update, just hours after NYCB’s move to slash its dividend and increase its loan-loss reserves by a half-billion dollars, may spread further concerns across the sector.
Gavekal Research economists Will Denyer and Tan Kai Kyan said there were “plenty of reasons to worry about the health of U.S. banks, especially smaller banks,” in a note Thursday.
“Asset quality is deteriorating. U.S. commercial real estate is in a slow-moving train wreck,” they said, noting that small banks are particularly exposed. Large unrealized losses from the 2022-23 bond selloff remain a worry, they said, as well as high money market rates drawing money out of deposits.
New York Community Bank shares picked up a downgrade from Raymond James analyst Steve Moss, though, who changed his rating to Market Perform from Strong Buy. “The results will likely put the stock in the penalty box until [there’s] greater clarity around capital, credit, and future business plans,” he said.
Bank of America’s
Ebrahim H. Poonawala reiterated his Buy rating on New York Community, but expressed his surprise at the bank’s drastic moves.
“While we anticipated a certain degree of reserve build tied to the impact of higher interest rates on its commercial real estate (CRE) borrowers,” Poonawala wrote Thursday, “what was most surprising to us was the urgency with which banking regulators are requiring NYCB to boost liquidity/capital/credit reserves, to better align the bank’s metrics with larger regional peers.”
Write to Callum Keown at [email protected]
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