Key Points
- New York Community Bancorp (NYCB), the savior of Signature Bank, experiences a 40% decline in shares.
- The drop follows the decision to cut dividends for capital strengthening and an unexpected loss announcement.
- NYCB's acquisition of Signature Bank's assets initially boosted investor sentiment but faced challenges in Q4 2023.
New York Community Bancorp (NYCB), hailed as the savior of the collapsed Signature Bank, is grappling with a significant setback as its shares plunge by 40%.
The decline, witnessed on Wednesday, was triggered by the bank's strategic move to cut dividends in a bid to fortify its capital position, coupled with the revelation of an unexpected loss, according to a report by the Financial Times.
NYCB had emerged as a success story amid the regional banking upheaval of 2023, which saw the demise of banks like Signature Bank, Silicon Valley Bank, and First Republic.
New York Community Bancorp's Role in Signature Bank's Downfall
Signature Bank, a major player in the crypto banking sector offering fiat and banking services to crypto startups, succumbed on March 12, 2023, following massive withdrawals by depositors in the aftermath of Silicon Valley Bank's collapse.
NYCB, based in suburban New York, stepped in and acquired a substantial portion of Signature Bank's assets, including deposits and loans, totaling nearly $13 billion. Initially, this move generated positive investor sentiment, bolstering NYCB's stock prices.
However, the optimism took a hit with the release of the bank's fourth-quarter results, revealing an unexpected loss of $260 million, a sharp contrast to the $164 million gain in the same period the previous year.
The surprising loss was mainly attributed to an increase in anticipated loan losses, particularly linked to loans associated with office buildings. NYCB executives pointed to challenging conditions in the office real estate market as a contributing factor.
Challenges and Regulatory Compliance
Thomas Cangemi, NYCB's CEO, explained during an analyst call that the decision to reduce the dividend was necessary to comply with banking regulations triggered by the Signature acquisition. This acquisition propelled NYCB's assets over $100 billion, subjecting it to stricter capital requirements.
Consequently, the bank witnessed a substantial decline in share prices, with a closing drop of 38% and an earlier dip of up to 46%. The KBW Regional Bank index also experienced a 6% decline, impacting other smaller banks in the sector.
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Stress-Testing and Revised Estimates
The unexpected losses prompted NYCB to conduct rigorous stress-testing of its commercial real estate loan portfolio, including the portion acquired from Signature Bank. The bank revised its estimate of expected losses on office loans, considering nationwide weaknesses in the office market and potential shocks from payment and interest rate fluctuations.
Alexander Yokum, an analyst at CFRA, downgraded NYCB's shares to a "hold" rating, expressing reduced confidence in management's ability to efficiently integrate recent acquisitions.
Despite challenges, Cangemi reassured analysts that the Signature acquisition was progressing well, acknowledging the teams' commendable performance, even though the integration might take longer than initially expected, possibly extending into the next year.
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