Shares of New York Community Bank fell 24 percent Friday morning after the troubled lender announced new leadership and reported an additional $2.4 billion loss.
The bank, with 420 branches and hundreds of thousands of customers, has faced a crisis in recent months after the quality of its commercial real estate loans deteriorated and rating agencies downgraded its credit rating to junk.
Businesses are giving up their downtown offices and retail spaces – after Covid normalized working from home and caused the decline of downtown shopping.
This left commercial building owners unable to pay lenders such as New York Community Bank (NYCB). About 16 percent of the loans are for the acquisition, development and construction of commercial real estate.
Two weeks ago, Shark Tank star Kevin O’Leary wrote in a column for DailyMail.com that small, regional banks are “dinosaurs” — and predicted that “NYCB will be wiped out within three months.”
New York Community Bank is facing a crisis due to deteriorating commercial real estate lending
Shark Tank star recently predicted that the bank would be completely wiped out within months
“If your bank is in the news, be concerned,” O’Leary wrote.
On Thursday, the Long Island-based bank was in the news again after restating its fourth-quarter results to report losses 10 times higher than before, citing $2.4 billion in charges it linked to purchases from before 2007.
The bank’s share price fell for the first time in late January after the bank cut its dividend and posted a surprise loss.
On the last day of the month, the price fell by 38 percent, from $10.38 to $5.47. It has continued to fall since then, before last night’s big drop. Losses since January are now about 64 percent.
On Thursday, the bank also announced that its executive chairman, Alessandro DiNello, would assume the role of president and CEO, effective immediately.
NYCB also noted that it had found “material weaknesses” in the processes it uses to evaluate the risks associated with loans.
What also hurts NYCB is that it is a major lender to New York apartment landlords, many of whom have suffered revenue declines at multifamily properties after New York tightened rent controls in 2019.
“Without a doubt, things are feeling a little shaky at NYCB right now,” Piper Sandler analyst Mark Fitzgibbon wrote in a note to clients.
“We fear that more problems will arise if a new team takes control,” he added.
Covid normalized working from home and catalyzed the decline of downtown shopping
Pictured is the Chrysler Building in New York; office buildings are struggling with increasing vacancies
But in a statement Thursday, DiNello assured the bank would weather the storm.
“My mandate as President and CEO, alongside our Board of Directors, is to continue our transformation into a larger, more diversified commercial bank,” he said.
“While we have faced recent challenges, we are confident in the direction of our bank and our ability to deliver long-term results for our customers, employees and shareholders.”
The bank also revealed in that statement that its chairman of the board would be replaced by Marshall Lux.
But like Kevin O’Leary, experts and industry bodies are not so optimistic about the future of regional lenders.
About $929 billion in outstanding commercial mortgages from lenders and investors will mature in 2024, or 20 percent of the total outstanding debt of $4.7 trillion, according to recent data from the Mortgage Bankers Association.
The delinquency rate on commercial mortgages, a leading indicator of defaults, rose last year but is so far well below levels seen during the Great Recession, when it approached 10%.
And about 14 percent of all commercial real estate loans, and 44 percent of office loans, appear to be “underwater,” with current property values lower than outstanding loan balances, according to a recent study. working document for the National Bureau of Economic Research.
“If nothing changes – if interest rates remain high and property values do not improve – we see defaults at the rate of the Great Recession, and in fact even higher, as a real possibility,” said one of the co-authors from Columbia Business. School professor Tomasz Piskorski recently told DailyMail.com.
Piskorski said he and his co-authors consider a commercial mortgage default rate of 10 percent or more to be “reasonably likely,” given the current share of underwater loans.
‘This is the icing on the cake that could really cause a problem for many banks, especially smaller and medium-sized banks.’