The pressure on NYCB isn’t letting up

Investors applied more pressure on the stock of New York Community Bank (NYCB) Thursday despite the lender’s efforts to shore up confidence.

The stock fell 7% at Thursday’s open, retracing the rebound it experienced Wednesday after the bank shared a financial update, announced the appointment of a new executive chairman, Alessandro “Sandro” DiNello, and held a call with analysts intended to shore up confidence.

“We have seen virtually no deposit outflow from our branches,” DiNello told analysts Wednesday. The former bank examiner said “building confidence” with Wall Street about NYCB’s deposits and liquidity would be the bank’s No. 1 priority going forward.

Some analysts cautioned that the situation remained fluid at the $116 billion lender despite their belief that the bank has the ability to get through this current crisis.

“It’s still a little bit early to tell the ultimate impact these actions will have,” David Smith with Autonomous Research said on Yahoo Finance Live. “I think this is an issue of earnings rather than viability,” he added.

The stock of New York Community Bank is down more than 50% since it surprised Wall Street on the morning of Jan. 31 by slashing its dividend and reporting a net quarterly loss of $252 million. The bank set aside $552 million for future loan losses, well above estimates, to account for weaknesses tied to office properties and rent-stabilized apartment complexes in New York City.

A New York Community Bank in Yonkers, N.Y. REUTERS/Mike Segar/File Photo (Reuters / Reuters)

The turmoil at NYCB is also dragging down the value of other regional bank stocks and stoking new concerns about the industry’s vulnerability to commercial real estate that is suddenly worth less due to high interest rates and shifting work patterns.

Treasury Secretary Janet Yellen told Senate lawmakers Thursday that “I hope and believe” commercial real estate weaknesses “will not end being a systemic risk to the banking system.” But “there may be smaller banks that are stressed by these developments.”

Treasury Secretary Janet Yellen testifies before a House Financial Services Committee hearing on 'the annual report of the Financial Stability Oversight Council' on Capitol Hill, Tuesday, Feb. 6, 2024, in Washington. (AP Photo/Manuel Balce Ceneta)

Treasury Secretary Janet Yellen said Thursday ‘there may be smaller banks stressed’ by commercial estate weaknesses. (AP Photo/Manuel Balce Ceneta) (ASSOCIATED PRESS)

New York Community Bank, which is one of the nation’s top 30 lenders, has a high level of exposure to rent-controlled apartment complexes in New York City. Those buildings account for 22% of its loans.

It is working to reduce that concentration as well as its exposure to office buildings, yet doing so is difficult given that selling any such loans at current interest rate levels could mean losses.

“What you want to see them do is diversify their book” and “none of this can happen fast enough for investors who are worried about their stock,” Chris Marinac, an analyst with Janney, said on Yahoo Finance Live.

Because shedding the risk of its commercial real estate portfolio could prove difficult in the current environment, NYCB is more likely to boost its capital by shedding the risk of better performing “non-core” loans such as residential mortgages and certain auto loans, according to Christopher McGratty, head of US bank research for Keefe, Bruyette & Woods.

“They’ve got a tough road ahead of them, but there’s a plan,” McGratty told Yahoo Finance Wednesday.

New York Community Bancorp’s troubles can be traced back to how it responded to a crisis that roiled the regional banking world in 2023 and took down three sizable regional banks: Silicon Valley Bank, Signature Bank, and First Republic.

NYCB played the role of rescuer during that crisis by picking up parts of the failed Signature Bank just months after it had to agree to buy another rival, Flagstar.

A worker arrives to the Signature Bank headquarters in New York City, U.S., March 12, 2023. REUTERS/Eduardo Munoz

Signature Bank was among the regional banks seized by regulators in 2023. REUTERS/Eduardo Munoz (REUTERS / Reuters)

But that decision to absorb billions in loans pushed the bank above an important asset threshold of $100 billion, subjecting the company to higher regulatory standards. Bigger banks in the US are required to set aside more capital to give them sizable buffers against future losses.

That, the company said, is the reason it cut its dividend and boosted the money it set aside for loan losses in the fourth quarter.

The pressure on the bank mounted this week as its stock continued to drop and Moody’s downgraded NYCB’s credit rating to junk. Moody’s cited “multi-faceted financial, risk-management and governance challenges” the bank faces as its reasoning for the downgrade.

Its commercial real estate exposure could create “potential confidence sensitivity” and NYCB “could face significant funding and liquidity pressure if there is a loss of depositor confidence.”

The new executive chairman named by NYCB Wednesday “could settle down the name,” Roundhill Investments Chief Strategy Officer Dave Mazza told Yahoo Finance.

“But what we’ve learned is once the short sellers and investors turn on these regional banks, they don’t have a lot of patience. So that would be my concern for someone who’s looking to invest in the space right now.”

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.

Click here for in-depth analysis of the latest stock market news and events moving stock prices.

Read the latest financial and business news from Yahoo Finance