Regional bank stocks took a hit on Friday following the latest news from New York Community Bancorp Inc. (NYCB). The company disclosed “material weaknesses” in its accounting, leading to a 25% drop in its stock. NYCB also announced a shakeup in leadership, including a new CEO, after experiencing significant profit losses last year.
This is not the first time NYCB has faced challenges. The Long Island-based bank has struggled with its exposure to ailing commercial real estate markets. Additionally, it operates Flagstar Bank in several states and acquired some of the leftover assets from the failed Signature Bank last year. While the accounting issues seem to be specific to NYCB, concerns have been raised about other banks facing similar struggles with real estate loans after the Federal Reserve’s interest rate increases over the past two years.
NYCB’s vulnerability lies in its significant real estate exposure in New York City, where rent controls prevent landlords from increasing rents to counter the effects of higher interest rates. As a result, other regional banks with exposure to New York City saw their stocks decline on Friday. Customers Bancorp, Valley National Bancorp, Webster Financial Corp., Bank United Inc., and Citizens Financial Group Inc. all experienced drops in their stock prices. Axos Financial Inc. was not yet traded at the time of writing.
However, it’s worth noting that not only banks with exposure to New York City were affected. Zions Bancorp and Comerica Inc. also saw declines in their stocks. In fact, regional banks accounted for five of the top 10 decliners among S&P 500 companies. The SPDR S&P Regional Banking ETF was down 1.2%.
The impact of NYCB’s troubles highlights the potential risks associated with real estate loans and the challenges posed by interest rate increases. While these concerns may be more prominent for banks with significant exposure to real estate markets, the broader banking sector is not immune to these issues.
Investors will be closely monitoring how NYCB addresses its accounting weaknesses and the actions taken by its new CEO. Additionally, attention will be on other regional banks as they navigate the potential risks associated with real estate loans and interest rate fluctuations.
