Glimmer of Hope for New York Community Bancorp as Stock Rises 17%
Investors regained confidence in New York Community Bancorp (NYCB) on Friday as the beleaguered bank saw its stock rise 17% on strong trading volume. This comes after a turbulent week that saw the stock plummet by 18% and an alarming 50% decrease since January 31. However, reassurance seems to have been found in insider stock purchases and the chairman’s pledge to build a “fortress” balance sheet.
NYCB Faces Regulatory Demands and Loan Loss Worries
NYCB attributes its recent challenges to the regulatory demands following its acquisitions of Flagstar Bank and assets from the failed Signature Bank. With this transition, the bank’s assets now exceed $100 billion, subjecting it to more rigorous liquidity and capital requirements. Moreover, NYCB’s heightened loan-loss allowance has raised concerns regarding the bank’s exposure to commercial real estate loans, especially considering that such loans make up 60% of its loan book, with loans on New York City’s rent-regulated apartment buildings constituting 44% of its loans.
Morgan Stanley Analyst Advises Caution for Regional Banks
Analyst Manan Gosalia of Morgan Stanley warns investors to exercise caution when considering regional banks. Despite trading at an average of just eight times Gosalia’s estimates for their 2025 earnings, he believes that loan problems will continue to worsen throughout this year. Specifically, he points out that commercial real estate loans could take several years to work through, making up 22% of loans at the typical midsize bank compared to just 5% at larger banks. Gosalia gives a Neutral rating on most mid-cap banks, including NYCB, citing concerns about the bank’s shrinking loan book impacting earnings.
Huntington Bancshares Emerges as Top Pick
Gosalia recommends Huntington Bancshares as his top pick due to its low exposure to commercial real estate. Based in Ohio, Huntington Bancshares has the highest level of reserves against such loans and is expected to earn $1.35 a share in 2025, with its stock rising from the current price of $12.41 to $16. Other regional banks that receive a Buy rating from Gosalia include East West Bancorp, Webster Financial, and M&T Bank.
Midsize Banks Await a More Promising 2025
Gosalia believes that, for the most part, midsize banks will not be of interest to investors until 2025. Anticipating more volatility in the group, with sentiment shifting between near-term credit risks and a potentially stronger 2025, Gosalia advises investors to wait for a more favorable outlook before considering investments in midsize banks.
Investor sentiment in NYCB received a boost on Friday as the bank’s stock rose 17%, driven by insider stock purchases and promises of a stronger balance sheet. However, concerns over regulatory demands and loan loss exposure continue to weigh on the bank, as well as on the regional bank sector as a whole. Analyst Manan Gosalia warns investors to exercise caution when considering regional banks, as loan problems are expected to worsen throughout the year. While most mid-cap banks receive a Neutral rating, Huntington Bancshares emerges as a top pick due to its low exposure to commercial real estate. Overall, investors may have to wait until 2025 to find midsize banks more interesting.
Analyst comment
Positive news: Glimmer of Hope for New York Community Bancorp as Stock Rises 17%
As an analyst, the market for NYCB may experience some short-term recovery due to investor confidence from insider stock purchases and promises of a stronger balance sheet. However, long-term concerns regarding regulatory demands and loan loss exposure may continue to impact the market negatively. Investors should exercise caution when considering investments in regional banks, and most midsize banks may only become interesting in 2025.
