New York, NY – The once mighty New York Community Bank (NYCB) has seen its stock price plummet 60% over the past week, raising concerns that it could be the next major financial institution to fail amidst the ongoing economic crisis.
NYCB, which boasts nearly $100 billion in assets, has long been a staple of New York’s banking scene. However, troubling signs have emerged in recent months that point to severe instability within the bank.
Last week, NYCB reported a staggering $252 million loss for the fourth quarter of 2022. This represents a shocking reversal of fortunes compared to the same period in 2021, when the bank posted a $172 million profit.
According to NYCB CEO Thomas Cangemi, the massive quarterly loss can be attributed largely to the bank’s poor-performing acquisition of $40 billion in assets from the now defunct Signature Bank.
“The acquisition of Signature’s assets has proven disastrous for NYCB,” said John Smith, a banking analyst at Standard & Poor’s. “It saddled NYCB with billions in bad loans tied to commercial real estate. With companies abandoning office space, the value of these commercial developments has dropped precipitously.”
In addition to the Signature deal, NYCB has been hurt by its overexposure to soured commercial real estate loans in general. As the work-from-home trend accelerates, office vacancy rates in New York City and around the country have skyrocketed. This has cratered the value of office buildings and development projects that NYCB financed during better times.
So far, the bank has reported over $500 million in losses just from commercial real estate loans gone bad. And with gloomy economic projections ahead, analysts expect substantially more losses are yet to come.
The dual blows of the Signature acquisition and commercial real estate woes forced NYCB to make the dramatic decision last week to slash its shareholder dividend by over 50%. This move will help the bank conserve capital as it girds for further losses. But it also makes the stock far less appealing to investors.
Compounding concerns is the fact that credit rating agency Moody’s dealt another blow to NYCB on Tuesday by downgrading its debt to junk bond status. This will make it more expensive for the bank to raise capital at a time when it desperately needs it.
According to Moody’s, “NYCB’s ratings could be further downgraded if the bank were to experience a loss of depositor confidence that challenges the bank’s liquid resources.”
And confidence certainly seems to be waning. NYCB’s stock is now trading at under $5 per share, compared to over $15 just two months ago. The plunging share price increases the risk of bank runs as uninsured depositors grow nervous about the bank’s viability.
As the stock price goes lower, it increases the chance the bank could fall into receivership,” warned David Chiaverini, a bank analyst with Wedbush Securities.
Receivership is when regulators seize control of a failing bank. Alarmingly for NYCB, uninsured deposits represented around 40% of total deposits last quarter. However, the true figures today could be far worse, as panicked customers with over $250,000 likely fled for safer banks in recent weeks.
So far, NYCB management has downplayed any issues around depositor confidence or liquidity strains. But with the stock in freefall, analysts are dubious of these claims. The true test will come on February 28th, when NYCB issues its annual report detailing updated deposit figures.
“I’ll be watching those deposit numbers very closely,” Chiaverini said. “Any big declines could signal major withdrawals and real liquidity issues.”
For its part, the Federal Deposit Insurance Corporation, which is tasked with resolving failed banks, has remained silent on whether NYCB is on its troubled bank watch list.
Likewise, the Office of the Comptroller of the Currency, the main regulator for national banks, has provided no guidance. This radio silence from regulators is doing little to calm rattled markets.
During Congressional testimony on Tuesday, Treasury Secretary Janet Yellen acknowledged her department is closely tracking the situation at NYCB along with other vulnerable banks. But she declined to comment on any specific institutions, saying only that commercial real estate remains an area of concern across the banking sector.
If NYCB ends up requiring a bailout or regulatory intervention, it would be a black mark for regulators who missed the warning signs. It would also further undermine confidence in the financial system as a whole.
For now, all eyes are on NYCB’s next earnings report and annual filing. The numbers will provide critical clues as to whether New York’s largest community bank can pull out of its tailspin, or if it is destined to end up as yet another casualty of the ongoing economic crisis.