NYCB Stock Plunges: What’s Behind the Credit Losses and Dividend Cut?

2024-02-07 15:51:00

Is another regional bank in the US on the way down? It seems so – the bond of New York Community Bank (NYCB) was rated today by Moody’s as a “junk bond”, mainly due to the large provisions the bank recorded as a result of exposure to regulated real estate assets In the US. As a result, the stock plunges by 9% and is trading at its lowest level in almost 50 years.
NYCB share since the beginning of the year

Huge provisions for credit losses

Last week the bank reported its results for the fourth quarter, when it was written that it increased its provisions for credit losses by a huge amount of half a billion dollars, when approximately 60% of the loans the bank gave were for commercial real estate assets.

The risk profile of borrowers in this area, and especially in the office area, has risen sharply since the corona epidemic which started a trend of working from home and hybrid work in a large number of industries. According to estimates, the amount of empty offices in the US is equal to the area of ​​48,125 building floors – this is a building 13 times higher than Mount Everest. 20% of the total office space in the US is empty, with the cities with the highest rates of empty offices being San Francisco, New Jersey and Houston – And the city with the highest number of vacant square meters of office space is New York with 70 million square meters of offices that are standing empty.

Lowering the dividend to increase reserves

Following NYCB’s announcements, Wall Street investors fear that the other banks also do not have enough reserves relative to their balance sheets, and the regional bank index is down 6%. NYCB closed 2023 with a loan-to-deposit ratio of 104%, with the ratio at other regional banks being in the region of 75%.

In order to address this ratio, NYCB cut its dividend sharply, from 17 cents to 5 cents per share, alongside a net loss of $260 million in the fourth quarter compared to a profit of $164 million in the corresponding quarter. The analysts expected a profit per share of 26 cents, in practice a loss per share of 36 cents was recorded.

Provisions for credit losses rose to 552 million dollars, when according to the bank the move was made to put it in line with the big banks, since the total assets it possesses recently crossed the 100 billion dollar mark. One of the purchases made by the bank that brought it to such a total of assets is the purchase of Signature Bank during the crisis of a year ago, in which Signature collapsed along with Silicon Valley Bank and First Republic.

As you remember, a year ago the Credit Suisse bank also collapsed, which in practice was nationalized by the Swiss government, this is when the government gave UBS bank support of 100 billion dollars in order to purchase the collapsing bank. Credit Suisse has been in slow decline since the real estate crisis of 2008.

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