Highlight: "Markets in Review" Issue #6

Potential Contagion from US Regional bank’s failures

The effects of last year’s banking crisis are still being felt today. What was perceived as a great deal for New York Community Bank (“NYCB”), has now opened up a myriad of unforeseen risks…

When NYCB acquired Signature Bank for a hefty discount, their total balance sheet crossed the threshold of $100 billion. However, this brought new regulatory hurdles; such as increased liquidity reserves requirements. To address this the bank significantly reduced their dividend payout from 17 cents to 5 cents. Additionally, given the losses in Commercial Real Estate, displayed in their most recent quarterly earnings report, it seems that this Bank is exposed to more risk than expected.

The Market is not particularly keen on this stock, as reflected by action in share price, moving 60% down, as of early February. Adding fuel to the fire, both the Chief Risk Officer and the Chief Audit Officer left in the months leading to a disastrous Q4 earnings report. It seems that both the market and the bank’s executives do not see a bright future for the Regional Bank segment.

With mounting pressures in the Commercial Real Estate market and regional banks' large concentration on such loans; are these developments simply a symptom of poor management, or an indicator of a larger movement in the economy? It would interesting to keep eye on what happens to similar regional banks in the US, as this might trigger a domino effect, thereby stressing the stability of the US economy.

You can read more about this in The New York Times article written by Rob Copeland and Emily Flitter which can be accessed here

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