New York Community Bank stock continues to decline despite the bank’s claim of increased deposits | CNN Business

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The New York Community Bank (NYCB) headquarters in Hicksville, New York, US, on Thursday, Feb. 1, 2024.

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Struggling regional lender New York Community Bancorp has sought to reassure investors that it has enough funds to remain operational after its stock lost approximately 60% of its value over the last eight days and Moody’s Investors Service downgraded the bank’s credit rating to junk.

“The challenge today is not easy. But this company has a strong foundation, strong liquidity and a strong deposit base, which gives me confidence for our path forward,” said Alessandro DiNello, the bank’s new executive chairman, during a call with investors on Wednesday morning.

DiNello mentioned that NYCB has observed “virtually no deposit outflow” from its retail branches in recent weeks.

The bank also announced the appointment of DiNello as its new executive chairman with immediate effect. NYCB (NYCB) acquired Flagstar Bank in December 2022, where DiNello was previously the president.

In addition, the Hicksville-based bank, which acquired the collapsed Signature Bank last March, disclosed plans to bring in new executives for the chief risk officer and chief audit executive positions, replacing the previous incumbents who left as the stock declined.

DiNello stated, “Overall deposits are up from around 2023, as all areas of the company have performed strongly, including our private banking and mortgage teams.” He continued, “We are already in a strong liquidity position … And we are committed to building liquidity further.”

Nevertheless, investors remained unconvinced as the stock continued to drop an additional 12% on Wednesday morning.

The bank reported having total deposits of approximately $83 billion, with $22.9 billion of those being uninsured. They also mentioned having a total liquidity of $37.3 billion, which exceeds uninsured deposits with a coverage ratio of 163%.

Thomas Cangemi, NYCB’s president and CEO, remarked, “Despite the Moody’s ratings downgrade, our deposit ratings from Moody’s, Fitch and DBRS remain investment grade.” He added, “The Moody’s downgrade is not expected to have a material impact on our contractual arrangements.”

JPMorgan downgraded the bank’s stock from overweight to neutral on Wednesday, citing various obstacles to NYCB’s ability to secure long-term debt. They suggested, “It appears the company will likely remain inward focused at least over the intermediate term,” and recommended investors to move to the sidelines for the time being.

DiNello mentioned on Wednesday that the $116 billion lender would work to reduce its exposure in the commercial real estate market. Property valuations for office and retail spaces have been declining since the pandemic, and the Federal Reserve’s efforts to combat inflation by raising interest rates have also affected the credit-dependent industry, causing implications for regional banks.

US banks hold about $2.7 trillion in commercial real estate loans, with approximately 80% being held by smaller, regional banks. These banks have not been classified as “too big to fail.”

It has been almost a year since the collapse of three US regional lenders, prompting financial institutions and regulators to take action to prevent a banking crisis. Presently, investors are concerned that a similar crisis may be looming.

While the previous crisis centered around interest rate risk, the current one hinges on the $20 trillion commercial real estate market.

Concerns escalated last week when NYCB reported a surprise loss of $252 million last quarter compared to a $172 million profit in the fourth quarter of 2022. The company also reported $552 million in loan losses, a significant increase from $62 million the previous quarter, largely due to anticipated losses on commercial real estate loans.

The abrupt drop in stock price and Moody’s downgrade led to fears of a bank run by uninsured deposits, i.e., those with more than $250,000 in their accounts.

These customers represented approximately 40% of NYCB’s total deposits as of the third quarter of last year, as per the company’s earnings filing. This is a considerably smaller share compared to Signature Bank and Silicon Valley Bank shortly before their downfalls.

Regulators remain ‘focused’

Minneapolis Fed President Neel Kashkari stated on Wednesday that the Federal Reserve is closely monitoring the stress faced by New York Community Bancorp. He noted that the pressure on banks due to commercial real estate loans is concentrated in the office sector, rather than being widespread across all banks.

According to Kashkari, pressures may emerge on a bank-by-bank basis, and bank supervisors are closely monitoring banks’ portfolios to manage these risks.

Additionally, Treasury Secretary Janet Yellen expressed her concern over the commercial real estate market during a testimony before the House Financial Services Committee. She highlighted the surge in vacant office buildings in some cities.

Yellen stated that bank regulators are actively addressing this issue by working with banks to manage risks, build up reserves, adjust dividend policies and maintain liquidity.

“I’m concerned. I believe it’s manageable, although there may be some institutions that are quite stressed by this problem,” Yellen said.

This story is developing and will be updated.

Author: OpenAI