Why is New York Community Bancorp’s stock going down?

(Reuters) – New York Community Bancorp shares fell 22% on Tuesday, extending a sell-off after the company reported an unexpected quarterly loss last week as Moody’s downgraded its long-term debt rating to junk.

The stock closed at $4.20 and is on track to lose more than half its value at current levels.

The frenzied sell-off since Wednesday has dragged down peer stocks due to renewed concerns about the health of the industry, which has been concerned for months over its exposure to the beleaguered commercial real estate (CRE) sector.

Ratings agency Moody’s late Tuesday downgraded all of NYCB’s long-term ratings from Baa3 to Ba2, considered a junk rating.

“Unexpected and significant losses for NYCB’s core historic commercial real estate lending, New York office and multifamily properties, could trigger potential confidence sensitivity,” Moody’s said in a statement. .

“The company’s increased use of market funds may limit the bank’s financial flexibility in the current environment.”

After-hours stock fell 13.1% to $3.65.

Last week, NYCB set aside a larger-than-expected reserve for potential bad loans, largely due to its exposure to CRE, where high interest rates and low vacancies put multiple borrowers at risk.

Russell Hackman, founder of Hackman Wealth Partners, said: “There is a lot of anecdotal evidence that the CRE situation is tough, and in fact, it’s even worse than people realize, at least when it comes to office real estate. There is a possibility that it is.”

Treasury Secretary Janet Yellen acknowledged the CRE concerns and said the multi-regulator Financial Stability Oversight Council was focused on the issue.

The KBW Regional Bank Stock Index was down about 1.4% on Tuesday. The index took a hit even as analysts stressed that NYCB’s problems were balance sheet specific.

After acquiring Signature Bank last year, the lender’s assets passed the $100 billion threshold, making it subject to stricter regulatory requirements and prompting it to cut its dividend to raise capital.

Bloomberg News reported on Monday that the decision to cut jobs came in the wake of increased pressure from the Office of the Comptroller of the Currency (OCC), the top banking regulator.

Since the earnings report, the company’s market value has fallen to about $3.5 billion, a far cry from its peak value of nearly $10 billion in August.

Since the announcement of the financial results, at least 13 securities firms have downgraded or lowered their price targets for the bank’s stock.

Last week, Fitch downgraded the bank’s credit rating, saying tighter regulatory requirements would reduce NYCB’s “flexibility” to focus on recapitalization.

The size of the reserves taken by the bank also “exceeded Fitch’s fundamental expectations,” the rating agency said.

On Tuesday, NYCB was sued by shareholders for allegedly concealing deterioration in its loan portfolio. The charges were filed in federal court in Brooklyn.

Activate optional activities

As NYCB stock fell, options market activity began to pick up. NYCB options were trading 11 times faster than normal, according to Trade Alert data.

According to the data, put contracts, which are typically purchased to express a bearish or defensive view, outnumbered calls, which are generally bullish plays, by nearly 5 to 1.

The bank’s 30-day implied volatility – how much traders expect the stock to move in the short term – rose to 170%, the highest level in at least four years, according to Trade Alerts. Ta.

Broader regional bank exchange-traded funds (ETFs) also triggered an increase in options activity, albeit at a more moderate level, suggesting investors are focusing more on NYCB’s prospects than the broader regional banking sector. are doing.

The data shows the ETF’s 30-day implied volatility has fallen to 33%, down about 1 percentage point from its three-month high on Wednesday.

The sharp decline in NYCB stock has enriched short sellers, investors who profit from falling stock prices. Those investors have made about $159 million in paper profits since NYCB released its results, according to Ortex data.

(Reporting by Niket Nishant, Johann M Cherian, Manya Saini, Chibuike Oguh, Saqib Iqbal Ahmed; Additional reporting by Scott Murdoch; Editing by David Ljunggren, Stephen Coates)