Stock price movements are usually a decent gauge of how a company is faring in any given moment. So it's no wonder that some people are questioning whether New York Community Bancorp, whose shares have shed 60% of their value in the span of a week, is headed for disaster.
See here: Bad news is piling up for NYCB. On Tuesday, Moody's Investors Service downgraded the bank's credit grade to junk status. That followed the bank's revelation last week that it lost $252 million last quarter.
On Wednesday, NYCB's new executive chairman sought to reassure investors that it has enough cash to stay afloat. Wall Street was initially unmoved, sending the share price down 14% for much of the day. But the stock rebounded in the afternoon, finishing the day up nearly 7%.
It probably doesn't help that we're just a few weeks shy of the anniversary of the start of the 2023 regional banking crisis — an event that consumers have largely forgotten but many investors are haunted by.
The echoes of 2023 are certainly present. But, as my colleague Elisabeth Buchwald writes, a falling stock price isn't the best gauge for the lender's viability.
The better indicator on that front is a bank's deposit flows, said David Chiaverini, a managing director at Wedbush Securities.
As of last quarter, deposits were down just 2%, and they declined even less if you exclude the custodial deposits connected to NYCB's acquisition of Signature Bank last year.
Analysts from Bank of America said in a note on Friday the feedback they've received from NYCB management "indicates that the bank is not seeing any unusual deposit inflow/outflows."
NYCB has not provided any official update on deposit flows and did not respond to CNN's inquiry.
BIG PICTURE
Get ready to hear a lot about commercial real estate, or CRE, in the news this year, probably alongside scarier words like "crisis" and "contagion" and "defaults."
The anxiety around NYCB isn't about one individual lender. The concern is about broader stress on the US banking sector because of its exposure to commercial real estate, which is, well, kind of a disaster at the moment.
Office buildings and retail spaces have rapidly lost value in the work-from-home era. Vacancies are rising. Meanwhile, the Fed's aggressive interest rate hikes have made it more expensive to refinance loans on those giant commercial properties.
Regional banks are disproportionately on the hook for those loans. Per Reuters: Nearly 70% of all CRE loans outstanding is held by small banks, according to estimates from Apollo's chief economist Torsten Slok.
On Tuesday, Treasury Secretary Janet Yellen told lawmakers that officials were monitoring the banking stress. "I believe it's manageable, although there may be some institutions that are quite stressed by this problem," she said.
It's not just American lenders feeling the pain.
On Wednesday, a German bank that specializes in real estate said it had set aside more money for bad debts, bracing for what it called the "greatest real estate crisis since the financial crisis." Last week, Japan's Aozora Bank said bad loans tied to US offices were partly to blame for its projected annual loss of $190 million, and Swiss private bank Julius Baer said its profit slumped 55% in 2023 because it lost $680 million on loans that were reportedly tied to a failed European real estate conglomerate.
BOTTOM LINE
As we wrote here last week, there is no need to panic.
Sure, there are some dark clouds. But the mood on Wall Street is less dire than you might expect when talking about hundreds of billions of dollars in assets on the line. Reuters' Jamie McGeever, reporting from the "Hedge Fund Week" conferences in Miami last week, noted that Wall Street mega-managers aren't signaling an immediate crash. The more likely scenario, he writes, would be "a steady drip" of borrowers refinancing at higher rates, buildings sitting vacant, and asset values heading south, over the next several years.
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