Source: Finance Association
① Due to the rapid expansion in asset size, New York Community Bank made provisions far exceeding expectations in its latest financial report and caused huge losses; ② analysts believe that this is huge negative news for this bank, but it may not necessarily affect the entire regional banking industry; ③ Affected by this news, there have also been changes in the US Treasury bond market.
On Wednesday local time, thunder broke out again at US regional banks. Along with$New York Community Bancorp (NYCB.US)$An earnings report that shocked Wall Street was released. The company's stock price fell sharply by more than 40% at the opening of the market, and by the close, the decline was still as high as 37%.
In the Silicon Valley Bank thunderstorm last year, the “Signature Bank” (Signature Bank), which went bankrupt together, took over. This is why this bank had problems, causing the whole of Wall Street to watch with tremors. The New York Community Bank situation also triggered a collective sharp drop in regional bank stocks. The KBW Regional Bank Index once fell nearly 4%, which was also the biggest one-day decline since First Republic Bank raised concerns in May of the year.
The bank that took over Thunderstorm Bank had a thunderstorm
The core reason for the market's side is that the financial report released by New York Community Bank on Wednesday was too explosive.
For example, New York Community Bank reported a loss of 252 million US dollars in the fourth quarter of last year. The bank's profit for the fourth quarter of the previous fiscal year was 172 million US dollars, and the profit for the third quarter of last year was 207 million US dollars. Analysts expected a profit of 206 million US dollars. Furthermore, the company's revenue of 886 million US dollars in the fourth quarter of last year was also lower than the forecast of 932 million US dollars.
Community Bank of New York disclosed that the loan loss provision for the previous quarter was as high as 552 million US dollars, 10 times higher than previous analysts' expectations. Under the influence of torrential performance, the company also cut dividends from 17 cents to 5 cents per share.
It's worth mentioning that the storm at New York Community Banking also had something to do with the acquisition of signature banks — the size of assets is expanding too fast. When it took over the signature bank from the Federal Deposit Insurance Corporation in 2023, New York Community Bank undertook $25 billion in deposits and close to $13 billion in loans.
By the end of December, New York Community Bank's assets reached $116.3 billion, which means that the bank will face more stringent regulatory requirements.
Community Bank of New York said that by establishing loan loss provisions similar to those of banks of similar size, it is possible to prepare ahead for potential weak commercial and residential real estate trends. Financial reports also show that in the last 3 months of last year, bank loans overdue for 30-89 days soared by nearly 50%.
Analyst quick review
Analysts also gave a split view on the impact of this incident: the future of New York Community Bank should remain wait-and-see, but it is unlikely to “spread” to more banks of the same type.
RBC Capital Markets analyst Jon Arfstrom explained that the bank's management had always said “strong asset quality” before, but now their tone has clearly changed, which is a major negative accident.
However, Stephen Biggar, a banking analyst at Argus Research, also said that taking over the signature bank made the New York Community Bank need to reserve more assets and loss reserves. Seen from this perspective, this will be a phenomenon unique to New York Community Banks and will not spread to other community banks.
As of press release, there has been no news that New York Community Bank has been overrun by depositors.
The US bond market fluctuates
After news of the financial storm broke out at New York Community Bank, US two-year Treasury yields, which are more sensitive to policies, experienced a wave of 15 basis points of diving, and 10-year US Treasury yields also quickly dived by 10 basis points.
The hidden logic behind it is that once a crisis occurs in important sectors such as regional banks and US commercial real estate, the Federal Reserve will have to enter a bailout state. After the New York Community Bank earnings report was released, market expectations for the probability that the Fed would cut interest rates in March also increased at the same time.
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