U.S. bank shares fall after New York Community Bancorp cuts dividend By Reuters

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Written by Niket Nishant, Nupur Anand

(Reuters) – U.S. regional bank stocks fell on Wednesday, plunging 37%. New York Community Bancorp (NYSE:) raised concerns again about the health of similar lenders after it cut its dividend and posted a surprise loss.

The KBW Regional Banks Index fell nearly 4%, its biggest one-day decline since May 2 last year after JPMorgan Chase (NYSE:) announced a failed buy. First Republic Bank (OTC:). Last year, it became the third bank to go bankrupt due to deposit operations, following Silicon Valley Bank and New York Bank. signature bank (OTC:).

Deposits have since stabilized, but some investors said Wednesday’s sell-off highlighted ongoing concerns about the health of local lenders, including that the cost of holding deposits will pressure net interest income (NII), which generates lending income.

“Generally, this sector is more exposed to emotional trading as depositors may feel a collapse is imminent,” said Brian Mulberry, “but high interest rates are driving down profits and NII for many banks.” . He is a client portfolio manager at Zacks Investment Management.

Investor anxiety intensified on Wednesday as the Federal Reserve left interest rates unchanged. High interest rates aimed at curbing inflation are straining not only the profits from local banks’ loans, but also the value of the securities they hold.

“The market is also repricing the first rate cuts made in March and May, creating an additional five months for depositors to pay interest above 5% while demand for loans weakens,” Mulberry said.

The selling seems to have taken the market by surprise.

Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:), said, “Many traders believe that the types of warnings we saw from NYCB are like cockroaches. If you see one, there must be more lurking in plain sight.” He said.

stock Valley National Bancorp (NASDAQ:), Western Alliance (NYSE:) Bancorp and Comerica (NYSE:) also fell between 3% and 5%.

But other analysts and investors said NYCB’s problems were mostly idiosyncratic to its balance sheet and that the bank’s stocks were not feeling the type of pressure seen in March of last year.

“I don’t think what we saw in the regional banking sector last March is anything like that at the moment,” said David Smith, a banking analyst at Autonomous Research.

Options traders backed by the SPDR S&P Regional Bank Exchange Traded Fund have a bullish bias, especially in the near term, according to Trade Alert data.

On Wednesday, these options traded four times faster than usual as investors took on a more gloomy outlook. Put options are typically purchased to express a bearish or defensive view, outnumber calls, and typically represent a bullish play, 3 to 1.

regulatory standards

Shares in NYCB fell as much as 46% in morning trading, but the losses later pared.

The bank, which bought some of Signature Bank’s assets last year, said it would cut its dividend by 70% and build capital to strengthen its balance sheet.

The Signature Bank purchase, along with the 2022 acquisition of Flagstar Bank, lifted NYCB’s balance sheet above the $100 billion regulatory threshold subject to stricter capital and liquidity requirements. As of December, assets were $116.3 billion.

“We have crossed this important milestone sooner than expected as a result of the Signature transaction,” New York Community Bancorp (NASDAQ:) CEO Thomas Cangemi said in a statement.

Shares of some banks just below the $100 billion threshold also fell. Zions, with $87 billion, fell nearly 3.4%, while Comerica, with $85 billion, fell 3%.

NYCB analysts also seemed perplexed and sometimes frustrated with bank executives who provided inadequate details, including NII forecasts.

NYCB posted an adjusted loss of $185 million, driven by a large $552 million provision for credit losses. The largest portion of these provisions was earmarked for its commercial real estate portfolio, which, like many lenders, is under pressure from ongoing pandemic office vacancies.

“It’s confusing for shareholders, but there’s no ripple effect. It’s relatively small,” said Edward Al-Hussainy, senior interest rates and currency analyst at Columbia Threadneedle Investments.