New York Community Bancorp, a troubled regional lender, is facing a challenging time as its stock value has plummeted by 60% in the past eight days and Moody’s Investors Service has downgraded its credit grade to junk. However, the bank’s new executive chairman, Alessandro DiNello, attempted to reassure investors by emphasizing the company’s strong foundation, liquidity, and deposit base. DiNello stated that there has been virtually no deposit outflow from the bank’s retail branches in recent weeks.
To address the situation, NYCB announced the appointment of DiNello as the new executive chairman, effective immediately. The bank also plans to bring in a new chief risk officer and chief audit executive to replace the previous executives who left amid the stock plunge. DiNello highlighted that overall deposits have increased since 2023, with all areas of the company performing strongly, including private banking and mortgage teams.
Despite these reassurances, investors remain unconvinced as the stock fell an additional 12% on Wednesday morning. NYCB holds approximately $83 billion in total deposits, with $22.9 billion being uninsured. However, the bank’s total liquidity of $37.3 billion exceeds uninsured deposits with a coverage ratio of 163%.
JPMorgan downgraded NYCB’s stock from overweight to neutral, citing various headwinds to the bank’s ability to raise long-term debt. They believe that the bank will likely remain inward focused in the intermediate term, leading them to advise investors to move to the sidelines for now.
DiNello acknowledged that the bank needs to reduce its concentration in the commercial real estate market. The pandemic has caused a decline in office and retail property valuations, while the Federal Reserve’s efforts to combat inflation through interest rate hikes have further impacted the credit-dependent industry. Smaller regional banks, like NYCB, hold about 80% of the approximately $2.7 trillion in commercial real estate loans held by US banks.
This situation has raised concerns among investors, reminiscent of the regional banking crisis that occurred a year ago. However, while the previous crisis focused on interest rate risk, the current one revolves around the commercial real estate market, which is valued at $20 trillion.
NYCB’s recent surprise loss of $252 million and increased loan losses of $552 million have further fueled fears. Moody’s downgrade and the sudden drop in stock price have raised concerns about a potential bank run by uninsured deposits. However, NYCB’s uninsured deposits represent a smaller share compared to other banks that faced collapses in the past.
Regulators, including the Federal Reserve, are closely monitoring the stress faced by NYCB. They are particularly concerned about pressures in the office sector of commercial real estate loans. While there are no immediate concerns about contagion effects, regulators are working closely with banks to manage risks, build reserves, adjust dividend policies, and maintain liquidity.
In conclusion, New York Community Bancorp is facing significant challenges as its stock value plummets and its credit grade is downgraded. The bank’s new executive chairman has attempted to reassure investors by highlighting its strong foundation and liquidity. However, investors remain skeptical, and JPMorgan has downgraded the stock. The bank aims to reduce its exposure to the commercial real estate market, which is currently under pressure due to changing dynamics caused by the pandemic and rising interest rates. Regulators are closely monitoring the situation to prevent any potential banking crisis.
