New York Community Bancorp reported a surprise loss as it wrote off bad mortgage loans, sending its shares tumbling Wednesday and dragging stock prices of regional banks across the country lower.
“This was a significant negative surprise,” John J. Arfstrom, an analyst at RBC Capital Markets, said in a note on Wednesday.
Shares of New York Community Bancorp closed down 38%, at $6.47, after it cut its quarterly dividend and increased its loan loss reserves by half a billion dollars. About 60% of New York Commercial Bank's loan book is commercial real estate.
Such borrowers, especially in the office sector, have been hurting since the pandemic forced millions of Americans to work from home. Regional banks tend to make far more mortgage loans than major money center banks and are more vulnerable to losses there.
On its morning conference call, New York Mercantile Bank said its dramatic measures were aimed at meeting the tougher standards that apply to large banks, where recent acquisitions have pushed its assets above $100 billion. New York Commercial Bank's cash, capital and risk levels will face their first regulatory stress test in April, Chief Executive Officer Thomas R. Cangemi said.
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Cangemi told listeners that the moves to boost reserves and cash do not reflect new problems in the New York central bank's massive commercial real estate loan book, but that investors appear to be wondering whether other regional banks have sufficient liquidity and reserves. While the S&P 500 fell 1.6% on Wednesday, the SPDR S&P Regional Banking ETF fell 6% on Wednesday to $49.70, after news of the NYCB and a Fed press conference left traders unsure whether the Fed would cut interest rates in March. .
Analysts say that not all regional banks are necessarily short on reserves. Jefferies analyst Ken Usden does not cover the New York central bank, but issued a note on Wednesday to point out its differences from other large regional banks he covers.
“Even the banks with the lowest reserve ratios in my group are higher today than they were at the Bank of New York,” Usden said. Baron.
New York Commercial Bank's reserves for office loans now stand at 8%. Another New York-focused lender is Citizens Financial Group
.
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Osden points out that its reserves of office loans amount to 10.2%.
As for liquidity, the Central Bank of New York ended the month of December with a loan-to-deposit ratio of 104%. In banks covered by USDIN, this average is 75%.
To build liquidity, New York Commercial Bank cut its combined dividend from 17 cents per quarter to 5 cents per share, while reporting a net loss of $260 million for the fourth quarter compared to a gain of $164 million for the same period last year. Analysts had expected earnings per share of 26 cents, according to FactSet. Instead, it lost 36 cents per share.
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The New York central bank recorded a $552 million provision for loan losses, a move the bank says brings its allowance for credit losses more in line with big banks. The New York Mercantile Bank's entry into big bank regulation followed its 2022 deal to buy Michigan-based Flagstar Bank, then its $38 billion asset acquisition from Signature Bank during last year's regional banking crisis. The provision for loan losses compares to a provision of $62 million for the three months ending in September. 30 depending on the company.
On the company's call, CEO Cangemi said the moves were intended to bring New York Community Bancorp more in line with large “Category IV” banks, rather than a negative credit outlook. By the end of 2024, the bank's regulatory capital is expected to reach 10% of the projected assets of such large banks.
“This is very focused on looking at the long-term plan of the company and being part of a new Tier 4 banking institution and having a capital position as we grow it to a level that was present in our peer groups,” Cangemi told listeners. “.
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Analyst Matt Breeze of Stevens wondered whether regulators had pressured the bank to take precautionary measures.
“We're not going to talk specifically about our regulatory conversations,” Cangemi said. “But the fact is that we have a report in April. We have adjusted our capital position significantly.”
Regulators have swarmed U.S. banks since the failure of Silicon Valley Bank and Signature last year, says Sonny Kalsi, co-CEO of real estate investment and lending firm BentallGreenOak. This has prevented wider failures, but has also hampered lending by regional banks to the property industry.
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Regarding the mortgage loans provided by the Commercial Bank of New York, CEO Cangemi said that the bank is not making much. Its assets fell by 90% in 2023. Borrowers appear to be betting that the Fed will cut interest rates in the second half of 2024, so they are postponing long-term borrowing decisions until then.
The bank said that net discounted amounts amounted to $185 million for the fourth quarter, compared to $24 million for the three months ending September 30. 30. The jump was attributed to two loans: a cooperative loan that the bank expects to sell during the first quarter of 2024 and an office loan that did not become due during the third quarter.
Loans that were 30 to 89 days delinquent totaled $250 million in December. 31, up from $169 in September. 30 according to the company's earnings report.
The bank has a large footprint in the Northeast and Midwest. The company says it is the second-largest multifamily portfolio lender in the country and the leading multifamily portfolio lender in the New York City market area, where it specializes in non-luxury, rent-regulated residential buildings.
Among the analysts who were surprised by the New York Mercantile Bank news was Steve Moss of Raymond James. In January. On October 10, he raised his rating on the stock to strong buy after concluding that investors were very concerned about the bank's loans on rent-controlled apartment buildings in New York. Moss downgraded his rating to market perform on Wednesday, after realizing that regulations for exceeding $100 billion in assets were “much more punitive” than he had expected.
One who called it right was Wedbush's David Chiaverini, who pushed New York Commercial Bank to sell in November over concerns that borrowers subject to the bank's leasing rules would have difficulty getting more equity as they had to refinance maturing loans at lower rates. higher.
Write to Bill Alpert at [email protected] and Andrew Welsch at [email protected]
