A glimmer of hope appeared Friday for beleaguered
New York Community Bancorp
after its stock rose 17% on strong trading volume.
Investors seemed reassured by insider stock purchases and the board chairman’s promise to build a “fortress” balance sheet.
A Friday’s close of $4.90, the regional bank was still down 18% for the week and over 50% since Jan. 31. That‘s when it surprised shareholders with a 70% cut in its dividend and a half-billion-dollar addition to its loan-loss reserves.
NYCB said that its 2023 acquisitions of Flagstar Bank and assets from the failed
Signature Bank
had raised it into the tier of banks whose assets exceed $100 billion. That threshold makes it subject to more stringent regulatory demands for liquidity and capital.
NYCB’s outsize increase to its loan-loss allowance revived the market’s worries about regional bank exposure to commercial real estate loans.
The lender, based in Hicksville, N.Y., has one of the industry’s higher levels of such loans, at 60% of its loan book. Loans on New York City’s rent-regulated apartment buildings amount to 44% of its loans. Executive Chairman Sandro DiNello told investors in a Wednesday call that NYCB will lighten that load.
NYCB’s troubles have been a drag on regional bank stocks as a group. The
SPDR S&P Regional Banking
exchange-traded fund ended Friday 9% lower than it was before Jan. 31.
In a deep-dive review of the mid-cap banks that he covers, Morgan Stanley analyst Manan Gosalia concluded it is too soon to go long on the group, even though regional banks now trade at an average of just eight times his estimates for their 2025 earnings. He has a Neutral rating on most.
Gosalia believes loan problems will continue to get worse this year. Problem loans in commercial real estate could take several years to work through, he wrote Wednesday. Commercial real estate comprises 22% of loans at the typical midsize bank, compared with just 5% at the biggest banks.
One of the banks with his Neutral rating is NYCB. Gosalia acknowledges the bank’s plan to build significant cash and capital this year, but he suspects the ensuing shrink of its loan book could weigh on earnings. When NYCB can grow its loans again, he would become more interested.
The analyst does think some mid-cap banks are worth buying. His top pick is
Huntington Bancshares.
Among the stocks he covers, the Ohio-based bank has the lowest exposure to commercial real estate, with the highest level of reserves against such loans. Gosalia thinks the bank could earn $1.35 a share in 2025, with its stock rising from its current price of $12.41 to $16.
Other regional banks that Gosalia rates as Buys include
East West Bancorp,
a California lender with a niche franchise in the Asian-American community;
Webster Financial,
a Connecticut-based lender with a cheap source of funds in its Health Savings Account business; and Buffalo, N.Y.-based
M&T Bank,
which has robust levels of cash and capital.
But he concludes that most midsize banks won’t become interesting until 2025. “We expect to see more volatility in the group as investor
sentiment moves between near-term credit risk and a stronger 2025,” Gosalia said.
Write to Bill Alpert at [email protected]
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