As the one-year anniversary of a crisis that brought down several midsize banks approaches, problems at another lender are once again bringing unwanted attention to the industry.
Concerns now focus on New York Community Bancorp, which operates approximately 400 branches nationwide under brands such as Flagstar Bank and Ohio Savings Bank. The bank grew in size over the past year, to more than $100 billion in assets, after taking over the fallen Signature Bank last spring in an auction organized by federal regulators.
Shares of New York Community Bancorp plummeted after it released an ugly earnings report that included unexpected losses on real estate loans tied to both office and apartment buildings. Its shares have lost more than half their value over the past week.
Shares of other lenders with commercial real estate portfolios have also fallen, a reminder that what ails one lender can affect others, as when fears about concentrated customer bases and low-rate bond portfolios brought down a group from lenders last spring. Here’s what you need to know.
What’s behind the latest banking concerns?
The biggest surprise in New York Community Bancorp’s earnings report last week came from its admission that the value of its real estate loans had fallen sharply, prompting it to cut its dividend and save $500 million to protect against losses. future. The bank identified a pair of loans, one related to an office complex and another for a cooperative residential building, that were responsible for up to $185 million in losses.
Bank representatives, who did not respond to requests for comment, further fueled the angst by deflecting analysts’ questions about their future earnings expectations. The bank’s shares plunged nearly 40 percent after the earnings report and have continued to lose ground, falling 11 percent on Monday and more than 20 percent on Tuesday.
A wide swath of smaller lenders, including community banks and private lenders, could also face losses related to commercial real estate loans, many of which were made before the post-pandemic transition to hybrid work pressured office landlords and affected the value of their properties. buildings to fall. Rising interest rates in recent years have also made refinancing such loans more expensive.
What other banks are in the spotlight?
M&T Bank has a similar size and comparable exposure to the commercial real estate sector, according to Wolfe Research. In its latest earnings report, the bank reported an increase in troubled home loans, but analysts said the exposure was “manageable.”
Average regional bank shares has lost 10 percent over the past week.
What about the largest banks?
America’s largest banks, such as JPMorgan Chase and Citigroup, have been setting aside money for months to prepare for potential real estate losses. They are generally considered better able to withstand a recession due to their diversified loan and depositor base. The stock prices of the largest banks have recently held up better than those of smaller lenders, and Chase said Tuesday it would open 500 additional branches over the next three years.
What do the regulators say?
Jerome H. Powell, Chairman of the Federal Reserve, said during a “60 Minutes” program interview that aired on Sunday who considered a banking crisis caused by the real estate sector unlikely. He said some smaller and regional banks were “challenged” but that the U.S. central bank was working with them.
Powell described the situation as a “considerable problem” that the Federal Reserve had been aware of for “a long time.”
In testimony Tuesday before the House Financial Services Committee, Janet Yellen, the Treasury secretary, said she was monitoring current banking stresses but declined to comment specifically on New York Community Bancorp. “I don’t want to get ahead of where we should be, given what’s happening,” she said.
Is there any risk of a bank run?
Last spring’s banking crisis was exacerbated by worried customers rushing to withdraw their money immediately, forcing several banks to suspend withdrawals as they scrambled to raise cash. (Banks are required to keep only a fraction of customer deposits on hand.) Thanks to the widespread use of mobile banking and electronic transfers, such a phenomenon can occur now faster than ever.
There is little sign that New York Community Bancorp is anywhere near that precipice. Bank executives said last week that deposits had fallen only 2 percent in the fourth quarter. They have provided no further public updates, but Bank of America analysts on Friday cited “management comments” that New York Community Bancorp was not experiencing any unusual deposit activity.
Is there any immediate reason for bank customers to worry?
Falling stock prices do not directly impede a bank’s daily operations. New York Community Bancorp branches continue to operate normally and each customer is protected by $250,000 government insurance.
Even for accounts above that level, regulators often hold auctions in the event of a catastrophe (as they did last spring) in which failing banks are taken over by healthier ones, with the goal of protecting the holders. of common accounts.
Alan Rappeport contributed reports.
