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Turbulence Strikes New York Community Bancorp: Chaos in the Banking Sector as Shares Plummet Turbulence Strikes New York Community Bancorp: Chaos in the Banking Sector as Shares Plummet

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New York Community Bank 5

The Storm Hits New York Community Bancorp (NYCB)NYCB once again bears the brunt of turmoil.

On Thursday, a glaring โ€œmaterial weaknessโ€ in internal controls was revealed by the bank regarding loan review procedures. Coupled with a significant leadership reshuffle at the helm, the company is navigating a tempestuous period.

Citing deficiencies in oversight, risk assessment, and monitoring functions as the crux of the problem, the bank pledged to craft a remedial strategy in its upcoming annual report to the U.S. Securities and Exchange Commission within the next 15 days.

Thomas R. Cangemi, the erstwhile CEO, promptly stepped down after 27 years steering the bank but will retain a position on the board. The baton now passes to Alessandro DiNello as the new President and CEO and Marshall Lux as the Presiding Director of the Board.

In the wake of these seismic announcements, shares of New York Community Bancorp plummeted by over 20% shortly after the opening bell on Friday. This downturn rippled through the broader regional banking sector, with the SPDR Regional Banking ETF
KRE declining over 3%.

Within the KRE ETF holdings, the following were the worst-performing regional bank stocks at 10:00 a.m. ET on Friday.

Name 1-Day Chg %
Metropolitan Bank Holding Corp. MCB -5.02%
Flushing Financial Corporation FFIC -4.28%
Dime Community Bancshares Inc. DCOM -4.27%
First Foundation Inc. FFWM -4.16%
Valley National Bancorp VLY -4.15%
Axos Financial, Inc. AX -3.86%
M&T Bank Corporation MTB -3.63%
Pinnacle Financial Partners, Inc. PNFP -3.60%
Columbia Banking System, Inc. COLB -3.54%
Western Alliance Bancorporation WAL -3.43%

Analyst Sentiments Towards NYCB Plunge

โ€œIn the world of bank stocks, uncertainty is a foe unlike any other. And, undeniably, NYCBโ€™s current state feels quite uncertain,โ€ shared Mark Fitzgibbon, an analyst at Piper Sandler. The control deficiencies were deemed the โ€œmost alarmingโ€ issue, prompting a downgrade from Overweight to Neutral. Piper Sandler voiced worries about potential future problems under the new leadership.

JPMorgan retained a Neutral stance on the stock, pointing to a risk profile that remains beyond a โ€œcomfort zone.โ€

David J. Chiaverini, CFA from Wedbush, noted that the internal control assessment might demand additional reserves, particularly in light of the companyโ€™s exposure to New York Cityโ€™s rent-regulated multifamily segment. Consequently, Wedbush slashed its core EPS projections for 2024/2025 from 80 cents/90 cents to 55 cents/65 cents and decreased the price target from $5 to $3.50.

NYCB Impact Sends Ripples Through the Regional Banking Landscape

The challenges at NYCB have triggered broader apprehensions regarding the banking sectorโ€™s entanglement with real estate loans, notably in the office-related realm.

According to a recent analysis by Goldman Sachs, NYCBโ€™s commercial real estate loans account for 56% of its total loan book, a figure markedly higher than the 18% average for the regional banks within their purview.

Other banks carrying substantial exposure to commercial real estate โ€“ exceeding 20% of total loans โ€“ comprise First Hawaiian Inc. FHB, Synovus Financial Corp. SNV, United Bankshares Inc. UBSI, First Horizon Corporation FHN, and Citizens Financial Group, Inc. CFG.

Read now: Banking Giants Confront Rising Delinquencies In Commercial Real Estate Sector

Photo: Shutterstock

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