A dive into New York Community Bank shares raises fears of a broader crisis

A dive into New York Community Bank shares raises fears of a broader crisis

As the one-year anniversary of the crisis that brought down many mid-sized banks approaches, the problems faced by another lender are once again bringing unwelcome attention to the industry.

Concerns now focus on New York Community Bancorp, which operates nearly 400 branches across the country under brands such as Flagstar Bank and Ohio Savings Bank. The bank’s size has swelled over the past year, reaching more than $100 billion in assets, after it acquired collapsed Signature Bank last spring in an auction organized by federal regulators.

New York Community Bancorp stock fell after it released an ugly earnings report that included unexpected losses on mortgages associated with both office buildings and apartments. Its shares lost more than half their value over the past week.

Shares of other lenders with commercial real estate portfolios also fell, a reminder that what hits one lender can affect others, as happened when concerns about concentrated customer bases and low-interest bond portfolios led to the downfall of a group of lenders last spring. Here’s what you need to know.

The main shock in New York Community Bancorp’s earnings report last week came from its admission that the value of its mortgages had declined sharply, prompting it to cut its dividend and absorb half a billion dollars to protect against future losses. The bank identified a pair of loans — one related to an office complex and the other to a cooperative apartment building — that were responsible for losses amounting to $185 million.

Bank representatives, who did not respond to requests for comment, raised further concern by avoiding analysts’ questions about their forecasts for future earnings. The bank’s stock fell nearly 40 percent after the earnings report and continues to lose ground, falling 11 percent on Monday and more than 20 percent on Tuesday.

A wide range of smaller lenders, including community banks and private lenders, could also face losses tied to commercial real estate loans, many of which were made before the post-pandemic move to hybrid operating squeezed office holders and dented the value of their loans. Buildings to knock down. Rising interest rates over the past few years have also made refinancing these loans more expensive.

M&T Bank is similar in size and has similar exposure to commercial real estate, according to Wolfe’s research. In its latest earnings report, the bank reported a rise in non-performing mortgage loans, but analysts said the exposure was “manageable”.

The average regional bank stock lost 10 percent over the past week.

The largest banks in the United States, such as JP Morgan Chase and Citigroup, have been setting aside money for months to confront potential real estate losses. They are generally considered more able to withstand downturns due to their diverse lending and depositor base. The stock prices of the largest banks have recently held up better than those of smaller banks, and Chase said on Tuesday that it would open an additional 500 branches in the next three years.

Federal Reserve Chairman Jerome Powell said during an interview on “60 Minutes” that aired on Sunday that he sees a real estate-led banking crisis as unlikely. He said some small and regional banks faced “challenges”, but the US central bank was working with them.

Mr. Powell described the situation as a “huge problem” that the Fed has been aware of for a “long time.”

In testimony Tuesday before the House Financial Services Committee, Treasury Secretary Janet Yellen said she was monitoring the current banking pressures, but declined to comment specifically on New York Community Bancorp. “It’s in light of what’s going on,” she said.

The banking crisis was exacerbated last spring by anxious customers who rushed to withdraw their money immediately, forcing many banks to halt withdrawals while they rushed to raise funds. (Banks are required to keep only a portion of customer deposits on hand). Thanks to the widespread use of mobile banking and electronic transfers, such a phenomenon can now happen faster than ever before.

There’s no sign that New York Community Bancorp is approaching that precipice. Bank executives said last week that deposits fell just 2 percent in the fourth quarter. They did not provide further public updates, but analysts at Bank of America on Friday cited “comments from management” that New York Community Bancorp had not seen any unusual deposit activity.

The decline in the share price does not directly hamper the day-to-day operations of the bank. New York Community Bancorp branches continue to operate normally, and each customer is protected by $250,000 in government insurance.

Even for accounts above that level, regulators typically hold disaster auctions (as they did last spring), where failing banks are taken over by healthier ones, to protect regular account holders.

Alan Rapaport Contributed to reports.

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