NYCB's troubles shouldn't spark another banking crisis
New York Community Bancorp once looked like a winner of last spring's regional banking crisis. But now it's in trouble, with shares losing more than 60% of their value since a disastrous earnings report on Jan. 31.
The big question: Could there be contagion that sparks another investment and acquisition surge, much like when Silicon Valley Bank's collapse begat transactions for rivals like First Republic and PacWest?
The big answer: It shouldn't, based on the underlying fundamentals.
- NYCB's big problem is an overconcentration of commercial and multi-family real estate loans, at a time when many New Yorkers are still working from home and state lawmakers have limited residential rent increases.
- Matthew Breese, a banking analyst with Stephens, said yesterday that NYCB had more than twice the exposure (as a percentage of assets) of the next highest peer bank.
- Plus, there hasn't yet been a run on NYCB's deposits, most of which go under the Flagstar business it acquired at the end of 2022. That's a stark contrast to what happened at SVB.
Caveat: Banking crises are crises of confidence, not sober analyses of underlying fundamentals. If NYCB were to fail, the shrapnel could fly in very unexpected directions.
Backstory: NYCB was a buyer during last year's banking crisis, acquiring most of the non-crypto assets of Signature Bank.
- That deal, plus the Flagstar purchase, pushed NYCB past the $100 billion asset threshold that put it in a new regulatory oversight category.
Zoom out: The OCC last month proposed new regulations around bank M&A.
The bottom line: NYCB is in full damage control mode, reshuffling top management and reportedly trying to offload mortgage risk. We'll soon know if it's too little too late and, if so, if the damage can be contained.