The US banking industry is experiencing another storm.
At the end of January this year, New York Community Bancorp (NYCB) released financial reports far below market expectations and cut its dividends by 70%. Affected by this, the stock price of the bank plummeted by 38% on the day of the financial report, with a decline of 42% for the week. As of Friday, February 16th, the stock price of New York Community Bank was $4.9 per share (Monday, February 19th, is Washington's birthday and the US stock market is closed for one day), with a cumulative decline of over 60% and a market value of $4 billion evaporated. Several securities firms have lowered their target prices for the stock price of New York Community Bank, and Moody's has downgraded its credit rating to junk.
The reporter noticed that the asset size of New York Community Bank exceeds 100 billion US dollars, ranking 28th in the US banking industry. After the outbreak of the regional banking crisis in the United States in 2023, the bank took over some of the assets and liabilities of the bankrupt Signature Bank, one of the largest cryptocurrency friendly banks in the United States.
The Crisis Caused by Performance Thunderstorm
According to the Q4 2023 financial report released by New York Community Bank, the bank incurred a loss of up to $252 million in the fourth quarter, significantly lower than the market's expected net profit of $206 million. In addition, the bank will reduce its dividend from 17 cents per share to 5 cents, or 0.05 US dollars, a 71% decrease from the previous quarter.
Thomas Cagemi, President and CEO of New York Community Bank, stated in a statement that the decision to reduce dividends is not an easy one and will prompt the bank to accelerate capital construction to support its balance sheet as a fourth tier bank.
As one of the largest regional banks in the United States, New York Community Bank has a long history and was founded in 1895. It was the first savings bank chartered by the state of New York in Queens, New York City.
In 1993, the bank successfully went public. In December 2022, the acquisition of Flagstar Bank, one of the largest residential mortgage service providers in the United States, also led to a significant increase in the asset size of New York Community Bank, reaching $90 billion. In March 2023, New York Community Bank acquired some of the assets and liabilities of the bankrupt Signature Bank for $2.7 billion, of which the acquired assets amounted to approximately $38.4 billion, including approximately $25 billion in cash and approximately $13 billion in loans; Simultaneously bearing approximately $36 billion in liabilities of the signing bank, including approximately $34 billion in deposits and approximately $2 billion in other liabilities.
As of December 31, 2023, the asset size of New York Community Bank was $116.3 billion, with deposits and loans of $81.4 billion and $85.8 billion, respectively.
A higher asset size also means stricter capital and liquidity regulatory indicators. According to the current asset size, New York Community Bank belongs to the fourth category of banks (banking institutions with total assets between $100 billion and $250 billion) and needs to submit their first capital plan to the Federal Reserve in April this year.
"Considering this, in the fourth quarter of last year, we took decisive action to establish capital, strengthen our balance sheet, strengthen our risk management processes, and better align with relevant banking peers," said Thomas Kanjami.
Data shows that in the fourth quarter of 2023, New York Community Bank made a loan loss provision (i.e. loan loss reserve) of $552 million, which was much more than analysts had previously predicted.
In addition, New York Community Bank also had two non-performing loans related to commercial real estate (office and apartment loans), resulting in a loss of up to $185 million for the bank. Financial report data shows that in the fourth quarter of last year, the loan balance of New York Community Bank with 30-89 days overdue jumped by 48%.
After a performance boom, the stock price of New York Community Bank fell 38% on the same day. Fitch downgraded the issuer default rating of the bank to BBB - with a negative outlook. Moody's downgraded the credit rating of New York Community Bank from Baa3 to Ba2 (junk).
Moody's stated that New York Community Bank is facing "multifaceted financial, risk management, and governance challenges" and warned that if the situation worsens, the bank's rating may be further downgraded. "Although the bank is seeking to increase capital, it has suffered unexpected losses in its commercial real estate business, which is an important component of the bank's business."
Silicon Valley Bank Crisis 2.0?
The explosive performance of New York community banks has raised concerns in the market about banks in the United States.
In the first half of 2023, Silvergate Bank, Silicon Valley Bank, and Signature Bank went bankrupt one after another, triggering a crisis in the US banking industry. Although US regulatory authorities have repeatedly spoken out to reassure the market after the collapse of banks in Silicon Valley, emphasizing the soundness and resilience of the US banking system, market concerns remain high.
"However, unlike the previous explosion of the Bank of Silicon Valley, this alarm was triggered by the dependence of New York community banks on commercial real estate loans." An industry insider told our reporter that the previous explosion of the Bank of Silicon Valley was due to huge losses caused by investing in treasury bond, and depositors worried about safety, so it was run and bankrupted.
Data shows that since the Federal Reserve initiated interest rate hikes in March 2022, US commercial real estate prices have fallen by over 11%. To boost market confidence, New York Community Bank recently appointed a new executive chairman and stated that it may reduce its risk exposure in the commercial real estate sector.
Michael Barr, the Vice Chairman of the Federal Reserve responsible for financial regulatory affairs, recently reiterated his long-standing views in a speech prepared by the National Association for Business Economics. He stated that the banking industry in the United States is in good condition and there are no signs of liquidity issues in the entire system. He also stated that "although the profits of New York Community Bank have been disappointing and the provision for losses has increased, leading to a significant drop in the bank's stock price, this does not represent anything."
Zhu Keli, Executive Director of the China Information Association and Founding Director of the National Research Institute for New Economy, told a reporter from the Huaxia Times that although the sharp drop in the stock price of community banks in New York has brought considerable shock to the market, whether it will really trigger another regional banking crisis still requires continuous observation of the market's subsequent reactions and regulatory measures, as well as in-depth analysis of the current dynamics and background of the financial market.
"Although the situation with community banks in New York may have some impact on the US small and medium-sized banking market, it is unlikely to trigger a comprehensive regional banking crisis again," Bai Wenxi, Vice Chairman of the China Enterprise Capital Alliance, told a reporter from the Huaxia Times.
Yuan Shuai, Deputy Secretary General of the Zhongguancun IoT Industry Alliance, also stated that although New York Community Bank has a large market share in certain regions, its share in the entire US banking industry is not decisive. This means that even if it encounters problems, other banks still have the ability to take over its business, thus avoiding a comprehensive crisis.
Zhan Junhao, founder of Fujian Huace Brand Positioning Consulting and public relations partner of Fuzhou Gongsun Ce, pointed out in an interview with Huaxia Times that currently, the overall risk situation of the US banking industry is still complex, with multiple banks facing problems such as declining asset quality and rising credit risk. If these issues are not effectively addressed, it may further exacerbate the risks in the banking industry.