© Reuters.
(Reuters) – New York Community Bancorp (NYSE:) shares fell as much as 46% to their lowest in over two decades on Wednesday after the lender slashed its dividend and posted a surprise loss for the fourth quarter.
The bank, which had bought assets of failed lender Signature Bank (OTC:) last year, said it was building capital to deal with potential enhanced regulation.
The pessimism spilled over into other bank stocks. Valley National Bancorp (NASDAQ:) shares fell 10%, while the KBW Regional Banking Index was on course for its biggest one-day drop since last May if losses hold.
COMMENTS:
EDWARD AL-HUSSAINY, SENIOR INTEREST RATE AND CURRENCY ANALYST, COLUMBIA THREADNEEDLE INVESTMENTS
“It’s messy for the shareholders but there’s no spillover. It’s relatively small, not only within the banking system overall but even within the New York state banking system. It’s come to prominence because it purchased assets from Signature Bank, but in the banking system at large it’s relatively insignificant.
“The more important element here is also that the Fed has illustrated quite effectively last year that they have the tools to deal with these liquidity and capital issues … Once you have those facilities in place you can just breathe a lot more comfortably than you did in March last year.
“The risk of contagion is minimal, I don’t see it in credit, and I don’t see it in equities.”
DENNIS DICK, FOUNDER AND MARKET STRUCTURE ANALYST, TRIPLE D TRADING
“This regional banking crisis that we saw last year, the problems never really got solved – all these banks are still holding a lot of crappy mortgages, there’s a lot of stuff on these books, it just kind of got forgotten. They’re still holding all these same crappy mortgages, lot of these regional banks obviously still have issues and I think this is just an eye-opener for the market to a certain extent today. It’s not getting any headlines because we’ve got Microsoft (NASDAQ:), we’ve got AMD (NASDAQ:). It’s probably a good day for this to report because it’s not getting any really major headlines here, but it’s still an issue, I mean these problems have never went away. So do they reemerge?”
“A lot of the regional banks have come back but if we see this happen again, maybe this a one-off. A lot of the other regional banks reported and their earnings were OK. It’s all about confidence, banking is all about confidence. So you have a stock is down 40% and all of a sudden people are looking and saying is my money safe there again. You don’t want to start that whole questioning that we had back in March of last year where people are like, well is my money safe there if it’s not I’m going to go pull it all out – because that’s where banks get in trouble – when they can’t meet the sudden demand for the withdrawal.”
“I don’t think we’re at that point here yet, but Is there the risk, you know would I invest in the region and any of these regional banks here right now? Probably not right because that risk is still real even though the Fed can help this problem by just simply lowering rates and that was why I never thought it was going to be made into a crisis last year either, if we started to see regional banks fail across the board, the Fed could do some emergency rate cuts and solve the problems very quickly. The Fed has got a lot of bullets to solve this problem, so I don’t see this materializing something huge, but it’s a little bit of an eye-opener.”
BENJAMIN GERLINGER, VICE PRESIDENT OF EQUITY RESEARCH, CITIGROUP
“Following New York Community (NYCB) 4Q23 earnings, we believe today’s downside pressure in VLY (Valley National Bancorp) is rather misplaced.”
“While the scars from the Silicon Valley (and associated deposit run) are still rather fresh, we believe the recent news is very different and rather idiosyncratic in nature. While it is not lost on us that a rapid price change in bank stocks typically invokes fear into the system (lowering multiples and increasing deposit costs), we find the step-up today as being quite different.”
“However, we would note that NYC deposits might become a little more expensive over the near-term – CD pricing and incentives to retain deposits – but as of now, our outlook and thoughts on regional banks remain, albeit at a lower valuation for the space.
BRIAN MULBERRY, CLIENT PORTFOLIO MANAGER, ZACKS INVESTMENT MANAGEMENT, COLORADO
“(NYCB is) shifting the balance sheet after they acquired Signature Bank, which effectively doubled the size.”
“The CEO cut the dividend, raised cash to bolster the cash position of the balance sheet. You’re seeing the effect of doubling the size of the bank overnight and it’s weighing on the management team at this point.
“It seems the move will be effective in the short term but what the market is concerned about is if you’re having to make these type of drastic changes to cash flow and capital, then what do we not know underneath?”
“That’s weighing on the stock and other regionals. This is a sector that runs in herds, we saw that last March when other banks failed. It’s starting to open up the question to investors to say, are we going down the path where there might be other bank failures?”
“TIM GHRISKEY, SENIOR PORTFOLIO STRATEGIST, INGALLS & SNYDER, NEW YORK
“There’s still fear about regional banks given events of almost a year ago when we had a run on several banks, which closed those banks. That fear is out there. On the banking side that’s what’s happening.”
“We’re having another rally in Treasuries in anticipation of near-term Fed easing.”
“The fact that it’s Fed day compounds this issue because you never know what the Fed is going to say. They might be somewhat dovish.”
“If there’s an ease it hurts bank balance sheets. Banks make money in times of higher and increasing interest rates. They can charge more for loans.”
“And in general, bank earnings this quarter so far have not been overwhelming.”
SANDY VILLERE, PORTFOLIO MANAGER, VILLERE & CO, NEW ORLEANS
“This could be a catalyst to make valuation a little cheaper for regionals. Something impacting a bank like that could open an opportunity to buy a solid bank. It’s a good opportunity to take a shot at a good bank because this seems to be stock specific.”
DAVID SMITH, BANK ANALYST, AUTONOMOUS RESEARCH
“The bank stocks are reacting as a result of the poor outlook given by the NYCB which has sparked concerns among the rest of the group and particularly for banks that could be crossing the $100 bn asset threshold in the next year or so and may come under tighter regulatory concerns which could have an impact on earnings.”
“The market reaction that we are seeing right now is more of a knee-jerk reaction and is relatively constrained as banks are getting painted by the same brush as NYCB which had a large loss and has given a poor guidance. I don’t think what we saw in the regional banking space in last March is anywhere on the cards right now.”
STEVE SOSNICK, CHIEF STRATEGIST, INTERACTIVE BROKERS, GREENWICH, CONNECTICUT
“Many traders believe that warnings of the type we saw from NYCB are like cockroaches – if you see one, there must be more hiding just out of sight. To be fair, I know of no other looming problems, but the options in KRE (SPDR S&P Regional Banking (NYSE:) ETF ) tell me that many traders are not taking any chances.”
