China News Service, February 8 (China News Finance Reporter Wu Jiaju) Recently, the share price of New York Community Bank in the United States has plummeted many times, and its credit rating has been downgraded to "junk level" by Moody's. What happened? ? Is New York Community Bank the next "Silicon Valley Bank"?
The stock price fell 60% in a week and was downgraded to "junk status" by Moody's
As of February 6, New York Community Bank's stock price fell 60% in the past week. The chain of events can be traced back to a recent financial report released by the bank.
On January 31, New York Community Bank released its fourth-quarter financial report. In the fourth quarter of 2023, the bank suffered a loss of US$252 million, while in the fourth quarter of 2022, the bank made a profit of US$172 million. Meanwhile, the bank's loan loss provisions reached $552 million in the fourth quarter of 2023, compared with $62 million in the previous quarter.
Picture from New York Community Bank’s 2023 fourth quarter financial report
On January 31, New York Community Bank’s stock price plummeted 38%, closing at $6.47 per share.
According to CNN, the initial catalyst for the stock price drop was the bank's previous announcement that it would cut its dividend. Meanwhile, the bank's loan-loss provisions come largely from soured commercial real estate loans, whose values have plummeted as people increasingly work from home and companies give up office space.
New York Community Bank CEO Thomas Canjimi also blamed the poor quarterly results on the acquisition of $40 billion in assets from Signature Bank, which brought New York Community Bank's total assets to more than $100 billion. Crossing that threshold is significant for banks because by law it means they must set aside more capital to protect against future losses. However, this limits the amount banks can lend.
On February 6, the international rating agency Moody's Investors Service downgraded the credit rating of New York Community Bank to "junk status."
Moody's said the downgrade was based on concerns about "challenges" facing New York's community bank after it shocked Wall Street by disclosing unexpected losses on its exposure to the troubled commercial real estate market. The downgrade slashed the bank's credit rating by two notches, signaling a significant loss of confidence in the bank's ability to repay debt.
Moody's also said that if New York Community Bank loses the trust of its depositors and the bank's liquidity is challenged, its rating may be further downgraded.
A credit downgrade could further raise borrowing costs, making life more difficult for troubled companies.
On February 6, New York Community Bank’s stock price fell 22% to close at $4.20 per share. On January 30, the bank’s stock price was $10.38 per share.
Picture from Yahoo Finance website
Will it become the next “Silicon Valley Bank”?
According to the official website of New York Community Bank, New York Community Bank Corporation is the parent company of Flagstar Bank, one of the largest regional banks in the United States. As of December 31, 2023, the company's total assets were US$116.3 billion, total loans were US$85.8 billion, total deposits were US$81.4 billion, and total shareholders' equity was US$10.8 billion.
The stock prices of New York Community Bank continued to fall, reminding many people of the bankruptcy of Silicon Valley Bank and First Republic Bank in 2023. Will New York Community Bank Become the Next "Silicon Valley Bank"?
According to CNN, David Chiaverini, managing director of Wedbush Securities, said investors' reaction to New York Community Bank's financial report was reasonable and did not indicate that the bank was at risk of failure. But he said the continued sharp decline in stock prices was starting to cause concern. As stock prices move lower, the likelihood of a bank being taken over increases, or in other words, the bank may eventually fail.
That's because uninsured depositors (customers with more than $250,000 in a single account) may be more concerned that banks won't have the money to cover their deposits.
As of the third quarter of last year, uninsured deposits accounted for about 40% of total deposits at New York Community Bank, according to documents released by New York Community Bank. That's a much higher percentage than it was shortly before the collapse of Signature Bank and Silicon Valley Bank.
U.S. Treasury Secretary Janet Yellen declined to comment specifically on the troubles New York community banks are experiencing at a recent hearing.
However, Yellen told the U.S. House of Representatives Financial Services Committee that U.S. officials are "carefully monitoring current banking stress" and regulators are working with banks to help them manage the risks posed by bad real estate loans. (over)