New York Community Bancorp Inc. experienced a significant drop in its stock on Thursday, triggering the steepest decline in regional-bank stocks since the collapse of Silicon Valley Bank in March 2023. However, the sector managed to rebound from earlier lows by the end of the trading session. New York Community Bancorp’s stock finished the day with an 11% loss, closing at $5.75 per share after trading as low as $5.51 earlier in the day.
The decline in New York Community Bancorp’s stock had a negative impact on the financial sector as a whole. The SPDR S&P Regional Banking ETF was down by 3.1%, and the KBW Bank Index dropped by 1.7%. However, the Financial Select Sector SPDR ETF rose by 0.2% as the broader market rallied.
The troubles for New York Community Bancorp began when it posted a surprise loss and announced a dividend cut on Wednesday, causing its shares to plummet by 37% in their largest one-day drop ever. The bank reduced its dividend from 17 cents per share to 5 cents per share and also took a $185 million loss on two loans, including an office-building loan.
Investors are concerned that New York Community Bancorp’s problems with one office loan could lead to losses at other lenders. The current situation with office spaces, as employees continue to work from home, has the potential to impact regional banks with exposure to harder-hit markets such as San Francisco, Washington, D.C., and New York City.
Despite the challenges faced by New York Community Bancorp, some investors remain optimistic about the bank’s future. Chris Whalen, chairman of Whalen Global Advisors, expressed confidence in the bank’s story and even bought more shares at the lows. Whalen highlighted a notable data point for the bank, which was its fourth-quarter drop of 33% in unrealized losses on securities to less than 5% of capital. This decrease was partly due to aggressive sales of legacy securities and lower interest rates.
While the drop in financial stocks presents an opportunity to buy larger banks, there are concerns about the impact on smaller and regional banks. Macrae Sykes, portfolio manager of the Gabelli Financial Services Opportunities ETF, believes that the real-estate impact will be more significant for smaller/regional banks compared to major banks due to lower concentration, sophisticated risk management, and more conservative reserves.
Analysts have mixed opinions on the future prospects of New York Community Bancorp. Citi banking analyst Keith Horowitz believes that the issues with the lender are isolated and do not have a read-through to other names. However, Moody’s Investors Service has placed all long-term and short-term ratings and assessments of New York Community Bancorp and its Flagstar Bank unit on review for a downgrade due to concerns about the bank’s unanticipated loss content, weak earnings, decline in capitalization, and reliance on wholesale funding.
New York Community Bancorp provided an outlook for 2024, expecting net interest income of $2.8 billion to $2.9 billion, which is higher than the FactSet consensus estimate. The bank also anticipates a net interest margin of 2.4% to 2.5%, lower than the analyst estimate of 2.55%. It plans to increase balance-sheet liquidity and regulatory compliance while projecting a decrease in loans and an increase in deposits.
Overall, New York Community Bancorp’s stock drop has raised concerns about the health of regional banks and their exposure to office-property loans. While some investors remain optimistic about the bank’s future, others are more cautious due to the challenges it faces in meeting capital requirements and improving profitability. The coming months will be crucial in determining how New York Community Bancorp navigates these obstacles and whether it can regain investor confidence.