What is behind the latest banking worries?
The principal shock in New York Community Bancorp’s earnings report last week came from its admission that the value of its real estate loans had dropped steeply, which spurred it to slash its dividend and sock away half a billion dollars to protect against future losses. The bank identified a pair of loans in particular — one related to an office complex and another for a co-op residential building — that were responsible for as much as $185 million in losses.
Bank representatives, who did not respond to requests for comment, fueled further angst by deflecting analysts’ questions about their expectations for future profits. The bank’s stock plummeted nearly 40 percent after the earnings report and have continued to lose ground, falling 11 percent on Monday and dropping more than 10 percent in early trading on Tuesday.
A large swath of smaller lenders, including community banks and private lenders, could also face losses linked to commercial real estate loans, many of which were made before the post-pandemic move to hybrid work put pressure on office landlords and caused the value of their buildings to drop. The rise in interest rates over the past few years has also made it more expensive to refinance such loans.
Which other banks are in the spotlight?
M&T Bank is similar in size and has comparable exposure to commercial real estate, according to Wolfe Research. In its latest earnings report, the bank reported a rise in troubled real estate loans, but analysts said the exposure was “manageable.”
The average regional bank stock has lost 10 percent over the past week.
What about larger banks?
The biggest banks in the United States, such as JPMorgan Chase and Citigroup, have for months been setting aside money to gird for potential real estate losses. They are generally considered better able to withstand a downturn because of their diversified base of lending and depositors. Share prices for the largest banks have recently held up better than those for smaller lenders.