What happened to the recent sharp drop in the stock price of New York Community Bank and the downgrade of its credit rating to "junk" by Moody's? Will New York Community Bank Be the Next "Silicon Valley Bank"?
The stock price fell 60% in a week
Downgraded to "junk" by Moody's
As of Feb. 6, New York Community Bank's share price is down 60% over the past week. The chain of events can be traced back to a recent earnings report from the bank.
On January 31, the New York Community Bank released its fourth-quarter earnings report, and the bank lost 2$5.2 billion, compared to a profit of $1$7.2 billion. Meanwhile, the bank's loan loss provision reached 5$5.2 billion, compared to $62 million in the previous quarter.
Pictured from the fourth quarter 2023 financial report of the Community Bank of New York.
On January 31, the shares of New York Community Bank plunged 38% to close at 6$47 shares.
According to CNN, the initial catalyst for the share price** was the bank's previous announcement that it would cut its dividend. At the same time, the bank's loan loss provisions, mostly from distressed commercial real estate loans, have plummeted in value as people increasingly work from home and companies abandon office space.
Thomas Kanjimi, CEO of New York Community Bank, also blamed the poor quarterly results on the acquisition of $40 billion in assets from Signature Bank, bringing the total assets of New York Community Bank to more than $100 billion. Crossing this threshold is significant for banks, as it means they must set aside more capital to protect against future losses by law. However, this limits the amount of money banks can lend.
On February 6, Moody's Investors Service, an international rating agency, downgraded the credit rating of New York Community Bank to "junk".
Moody's said the downgrade was due to concerns about the "challenges" facing New York community banks, which shocked Wall Street by disclosing unexpected losses in its struggling commercial real estate market exposure. The downgrade downgraded the bank's credit rating by two notches, signaling a significant loss of confidence in the bank's ability to repay its debts.
Moody's also said that if New York Community Bank loses the trust of depositors and the bank's liquidity is challenged, its rating could be further downgraded.
A credit rating downgrade could further raise borrowing costs, making life harder for troubled companies.
On Feb. 6, New York Community Bank's share price closed at 4$20 shares. On January 30, the bank's share price was still 10$38 shares.
Image from Yahoo Finance**.
Will it be the next "Silicon Valley Bank"?
According to the official website of the Community Bank of New York, the Community Bank Corporation of New York is the parent company of Flag Star Bank, one of the largest regional banks in the United States. As of December 31, 2023, the company had total assets of $116.3 billion, total loans of $85.8 billion, total deposits of $81.4 billion and total shareholders' equity of $10.8 billion.
The stock price of New York Community Bank has been continuously **, reminding many people of the bankruptcy and collapse of Silicon Valley Bank and First Republic Bank in 2023. Will New York Community Bank Be the Next "Silicon Valley Bank"?
According to CNN, David Chiavelini, managing director of Wedbush**, said that investors' reaction to the New York Community Bank's earnings report was reasonable and did not indicate that the bank was at risk of failure. But he said that the stock price continued to be sharply **, which began to cause concern. As the stock price falls, so does the likelihood of the bank being taken over, in other words, the bank may eventually fail.
This is because uninsured depositors (customers who deposit more than $250,000 in a single account) may be more concerned that banks don't have the money to pay their deposits.
As of the third quarter of last year, uninsured deposits accounted for about 40 percent of total deposits at New York Community Banks, according to documents released by New York Community Banks. This percentage is much higher than shortly before the collapse of Signature Bank and Silicon Valley Bank.
Recently, U.S. Treasury Secretary Janet Yellen declined to comment specifically on the troubles with New York's community banks at a hearing.
However, Yellen told the U.S. House Financial Services Committee that the U.S. is "carefully monitoring the current banking stress" and that regulators are working with banks to help them manage the risks posed by nonperforming real estate loans.
Original title: "Stock Price Plummets, Will New York Community Bank Become the Next "Silicon Valley Bank"? 》
Reporter Wu Jiaju.
*: China News Network.