Regional Banking Fears Resurface after NY Community Bancorp Slashed Dividend & Posted Rare Net Loss

Renewed Regional Banking Concerns

Last Wednesday, the New York Community Bancorp (NYCB) reported a rare net loss of $260 in the fourth quarter of 2023, due to "higher provision for credit losses". These provisions totaled $552 million, from just $62 million in Q3. The bank also announced a 71% cut to its dividend, in order to build up capital. It will now pay out just $0.05/share, from the $0.017/share it has been every quarter since 2016. Along with a 2% fall in deposits compared to the previous quarter, it was not a pretty picture. [1]

Markets reacted negatively to the results, and the stock (NYBC.us) plunged nearly 38% on the day, its worst on record. The report reignited fears around regional lenders, less than a year after the Silicon Valley Bank failure, causing a slump in the SPDR Regional Banking ETF (KRE.us).

The New York Community Bancorp was in the spotlight of that crisis, as it had assumed certain assets and liabilities of the Signature Bridge Bank [2], which had come under the control of Federal Deposit Insurance Corporation (FDIC) during the SVB-induced turmoil. The transaction raised the bank's assets above the $100 billion threshold that comes with increased regulatory requirements and made it one the 30 largest banks in the US, creating the need for higher capital reserves and stronger balance sheet.

The results came just before the US Fed removed from its policy statement the reference that the US banking system is "sound and resilient" and pushed back against aggressive market expectations for lower interest rates [3]. The central bank's massive amount of tightening that has brought the policy rate to 5.25% weighs on the property market. Another reason is the work-from-office trends following the pandemic. Office vacancies have been rising and stood at 13.5% YTD (through December 19), according to a recent report form Fitch, which expects them to increase further. [4]

Why Trade Shares with FXCM?

  • $0.00 Commission*
  • Mini Shares - Fractional Share Trading with minimum trade sizes of 1/10 of a share.
  • Low Margin Requirements

Regional institutions are exposed to commercial real estate (CRE) and NYCB had more than $13 billion in such loans at the end of 2023, with investors fearing that some will not be paid. The higher provisions for credit losses were driven by charge-offs, partly tied to one office loan. Fitch estimates that commercial mortgage backed securities (CMBS) loan delinquencies will double from 2.25% in November 2023, to 4.5% in 2024 and 4.9% in 2025.

There are fears of a crash in the property market and the Fed's reserved stance around a monetary policy pivot aggravated those concerns, which spill to regional banks with commercial real estate exposure. However, the central bank has signaled it will dial back restraint later this year. Furthermore, the New York Community Bank is beefing up its reserves to withstand the challenging environment, while authorities had taken swift action last year to contain the SVB fallout.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 05 Feb 2024 https://ir.mynycb.com/news-and-events/news-releases/press-release-details/2024/NEW-YORK-COMMUNITY-BANCORP-INC.-REPORTS-RECORD-RESULTS-FOR-2023/default.aspx

2

Retrieved 05 Feb 2024 https://ir.mynycb.com/news-and-events/news-releases/press-release-details/2023/NEW-YORK-COMMUNITY-BANCORP-INC.-THROUGH-ITS-BANK-SUBSIDIARY-FLAGSTAR-BANK-N.A.-ACQUIRES-CERTAIN-ASSETS-AND-ASSUMES-CERTAIN-LIABILITIES-OF-SIGNATURE-BRIDGE-BANK-FROM-THE-FDIC/default.aspx

3

Retrieved 05 Feb 2024 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20240131.htm

4

Retrieved 22 Feb 2024 https://www.fitchratings.com/research/insurance/us-commercial-real-estate-deterioration-to-increase-in-2024-led-by-office-21-12-2023

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}
Disclosure
*

When executing customers' trades, FXCM can be compensated in several ways, which include, but are not limited to: spreads, charging commissions at the open and close of a trade, and adding a mark-up to rollover, etc. Commission-based pricing is applicable to Active Trader account types.

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.