:max_bytes(150000):strip_icc()/GettyImages-1970581352-6b51f99c6e324ce6836d63ddbb1b6734.jpg "Regional Bank Stock Sell-Off Sparked By Commercial Real Estate Loan Fears")
Key Takeaways
- Regional banks suffered losses after New York Community Bancorp released worse-than-expected losses on Wednesday.
- Western Alliance and Valley National were among the firms seeing their shares drop on Thursday.
- Analysts are concerned that tough conditions in the commercial real estate market could lead to a repricing of risk or even another financial crisis.
Regional U.S. banking stocks slipped sharply on Thursday as a surprise quarterly loss posted by New York Community Bancorp (NYCB) sparked fears that commercial real estate loans (CRE) pose broader risks to the sector.
The NYCB stock fell about 15% to a low of $5.51 and dragged other regional banks along with it.
Though the stocks gave up some of those losses later in trading, Western Alliance (WAL) shares fell as much as 13% while Valley National Bancorp. (VLY) shares dropped more than 11.8% and Zions Bancorp (ZION) stock fell about 9.8%. East West Bancorp (EWBC) and M&T Bank (MTB) shares each lost about 7% before a slight recovery.
SPDR S&P Regional Banking ETF (KRE), a broad gauge of the sector, at its lowest was down 6.3%.
Why Are NYCB’s Commercial Real Estate Loans A Concern?
New York Community Bancorp is the parent company of Flagstar Bank, one the country’s largest regional banks. The company’s CEO Thomas Cangemi said the latest dismal quarter was due to the acquisition of around $40 billion in assets, including $13 billion worth of loans, from the failed Signature Bank.
However, many are now worried that CRE loans could be the spark for the next financial crisis. Capital Economics issued a recent report saying that “more pain” could be coming for the U.S. CRE market as “weak economic growth and high interest rates continue to take their toll.”
Wedbush Securities said New York Community Bancorp’s earnings could spark a “potential repricing of risk” in commercial loans. Analysts at Bank of America were more optimistic, saying although it may take time for the stock to recover, they believe the current price is “discounting the heightened uncertainty tied to credit quality.”