Lack of concern among regional-bank bondholders regarding New York Community Bank’s issues

There seems to be a lack of concern among regional-bank bondholders regarding the issues facing New York Community Bank (NYCB). While NYCB’s stock has experienced a significant decline, its bonds are holding up relatively well. This suggests that bondholders view NYCB’s problems as isolated and not indicative of broader issues in the regional-bank sector.

Last week, NYCB’s sole traded bond experienced a sharp decline as the bank posted a surprise quarterly loss and disclosed troubles with its commercial real-estate loans. The company also reduced its dividend to meet regulatory requirements. As a result, NYCB’s stock is down nearly 60% in the year to date, and its bonds are trading at around 75 cents on the dollar after being downgraded to junk status by Moody’s Investors Service.

Analysts have expressed concerns about NYCB’s stock, with D.A. Davidson downgrading it to neutral from buy and stating that it is trading “untethered from fundamentals.” The bank has also experienced turnover in its management team, with both its chief risk officer and main audit executive leaving. This has raised concerns among investors, as Silicon Valley Bank faced a similar situation before its collapse in March 2023.

Despite these issues, other small lenders in the community-bank sector have seen steady performance in their bonds. Western Alliance Bancorp, Zions Bancorp N.A., First National Bank of Pennsylvania, and Webster Financial Corp. have all maintained stable bond prices and even experienced net buying over the past two weeks.

The bond market appears to view NYCB’s problems as contained and not indicative of broader issues in the regional-bank sector. Market sources suggest that there is no contagion effect and that the bond market sees this as an isolated problem.

Overall, while NYCB’s stock has suffered significant losses, its bondholders remain relatively unconcerned. The market seems to believe that the issues facing NYCB are unique to the bank and not reflective of broader problems in the regional-bank sector. Other small lenders in the community-bank sector have maintained stable bond prices, indicating that investors view NYCB’s problems as isolated.