New York Community Bank’s woes could signal trouble for other regional banks
New York Community Bank’s woes could signal trouble for other regional banks
Banking woes are back. New York Community Bancorp’s stock has been on a wild ride over the last 24 hours, plunging to a new low and rebounding this morning after Moody’s downgraded the bank’s credit rating to junk status.
Remember: NYCB took over Signature Bank’s assets after it failed a little less than a year ago. And that’s put the bank into a new regulatory category, hence the Moody’s downgrade. Meanwhile, in an earnings call last week, NYCB reported $252 million in losses last quarter, citing losses in commercial real estate.
When NYCB acquired Signature Bank last year, it took on just under $40 billion in assets overnight.
“I say this to my clients all the time: Do not get excited about growth because you don’t know what’s in there,” said Mayra Rodriguez Valladares, managing principal at MRV Associates, a financial risk consultancy.
“What’s in there” means anything from what kind of bonds and loans the bank has to what kind of software it uses.
“There was no time whatsoever for NYCB to do good due diligence on Signature,” Valladares said.
A corporate bigwig might say any acquisition comes with growing pains. That is, until the core of the business and a sizable piece of the acquired business, real estate loans, sours.
“And so if you think about it, right, what kind of real estate assets do we have in the New York metro area?” said Chris Kotowski, a bank analyst at Oppenheimer.
The office vacancy rate in New York City at the end of last year was 17%. A record high, according to JLL, a commercial real estate firm.
Chicago, San Francisco and Houston are seeing similar trends. That means commercial real estate could threaten other regional banks, which Kotowski said tend to take on these loans.
“It really points at these structural weaknesses of the small regional bank business model. They just can’t get the diversity that they need on the asset side of the equation,” he said.
None of these factors are a clear sign that NYCB will fail, said Elinda Kiss, a finance professor at the University of Maryland.
“What we wanna concern ourselves with more than anything else is, is there sufficient liquidity? Will they lose a lot of deposits?” she said.
As of an investor call this morning, NYCB says it’s seen “virtually no deposit outflow.”
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