About a year ago, the wave of bank bankruptcies in the United States caused by the collapse of Silicon Valley banks was still vivid in our minds, but now, the US financial market is facing another storm. On Tuesday, the stock price of New York Community Bank (NYCB) plummeted 22.2% to $4.20, setting a new closing low since 1997. This is also the fourth time in five days that NYCB has experienced a double-digit decline.
According to Interface News on February 6th, citing foreign media sources, informed sources have revealed that increasing pressure from the highest regulatory agency in the United States has led to an unexpected decision by New York Community Bank to reduce dividends and increase loan loss provisions to prevent unforeseen events in commercial real estate loans. It is reported that after a behind the scenes conversation with officials from the Office of the Comptroller of the Currency (OCC), the New York Community Bank introduced the aforementioned drastic financial measures, causing the company's stock price to experience a record sharp drop and dragging down the entire industry's stock price.
According to the Daily Economic News, on January 31st Eastern Time, NYCB released its financial report for the fourth quarter of 2023. The data shows that the bank suffered a loss of $260 million, far from the analyst's previous expectation of a profit of $206 million, while the bank earned a profit of $172 million in the same period of 2022. During the reporting period, there was a loss of $0.36 per share, which turned from profit to loss compared to the same period last year.
At the same time, NYCB announced a 5 cent cut in dividends, far below analysts' expectations of maintaining dividends at 17 cents, mainly to meet regulatory capital requirements for fourth tier banks with assets ranging from $100 billion to $250 billion. According to Reuters, NYCB acquired some assets of the bankrupt Signature Bank last year, and with the acquisition of Flagstar Bank in 2022, its asset size reached $116.3 billion, making it one of the 30 largest banks in the United States. According to regulatory regulations, NYCB needs to reserve more capital and loss provisions.
The financial report shows that during the reporting period, NYCB's loan loss provision was $552 million, more than 10 times higher than the analyst's forecast of $45 million, and far exceeding the previous quarter's $62 million. Reuters reported that this indicates that its credit situation is deteriorating.
Moody's, a rating agency, has stated that it has included all long-term and short-term ratings and evaluations of NYCB and its subsidiary, Star Bank, on a potential downgrade observation list. Brokerages have also made adjustments to NYCB's rating, for example, Raymond James analyst Steve Moss downgraded NYCB's rating from "strongly recommended" to "on par with the market.".
The Wall Street Journal reported that the explosive performance of community banks in New York City has reminded some investors of the US banking crisis that occurred in early 2023. Silicon Valley Bank and First Republic Bank both closed within weeks, triggering a crisis of trust among depositors and investors in regional banks.
More noteworthy is that on the same day as the release of NYCB financial reports, the FOMC kept interest rates at a high level for the fourth consecutive time, and Federal Reserve Chairman Powell shattered market expectations that the FOMC would start cutting rates at its March meeting at a subsequent press conference, further exacerbating investor anxiety. According to a Reuters report, high interest rates aimed at curbing inflation have dragged down loan profits and the value of securities held by banks in the US region.
Rick Roberts, former risk credit director of the Federal Reserve, pointed out in an interview with the Daily Economic News that the Fed's long-term maintenance of high interest rates would lead to banks facing losses due to rising interest rates, but these losses have already been provisioned for.
He further explained to reporters, "NYCB's situation is unique. The bank's total asset size as of the end of 2023 has exceeded $100 billion, classified as another more stringent regulatory category by the Federal Reserve, leading to further increases in NYCB's provisions. In this sense, NYCB's profit fluctuations seem to be mainly due to the bank's unique one-time provision payments, rather than broader regional banking issues."
Although NYCB's performance losses are due to excess loss provisions, the commercial real estate industry risks faced by regional banks in the United States in a high interest rate environment are still not to be underestimated. Bloomberg reported that the reason NYCB recorded its largest daily decline in over 30 years since going public on Wednesday was because investors were concerned that NYCB may be a precursor to the collapse of commercial real estate in the United States.
A report released by JPMorgan Chase in April last year showed that commercial real estate loans accounted for 28.7% of small bank assets, while the proportion of large banks was only 6.5%. This means that small banks have a greater risk exposure to commercial real estate.
"Regional banks are indeed facing actual pressure from the upcoming maturity of commercial real estate loans, requiring refinancing and then write down because the value of collateral is now lower. However, it should also be pointed out that most banks have already set aside loan loss provisions for this. The key issue is whether they are sufficiently lenient when recording expected commercial real estate loan losses (with book funds remaining)." Rick Roberts explained to a reporter from the Daily Economic News.
Daily Economic News Comprehensive Daily Economic News (Reporter: Cai Ding), Interface News, Public Information