Of about 4,000 U.S. banks analyzed by the Klaros Group, 282 banks face stress from commercial real estate exposure and higher interest rates. The majority of those banks are categorized as small banks with less than $10 billion in assets. “Most of these banks aren’t insolvent or even close to insolvent. They’re just stressed,” Brian Graham, Klaros co-founder and partner at Klaros. “That means there’ll be fewer bank failures. But it doesn’t mean that communities and customers don’t get hurt.”
It’s been a year this week since the collapse of Silicon Valley Bank sent shockwaves through the banking sector. While the crisis most directly affected the regionals, major U.S. financial institutions for most of 2023 also found their stocks under assault. Big banks, like Club holding Wells Fargo , were largely able to turn the corner. The question is still out on the smaller lenders. On March 10, 2023, SVB abruptly shuttered and regulators seized the firm’s deposits — marking the largest U.S. banking failure since the 2008 financial crisis. The go-to bank of tech venture capitalists went from a well-capitalized institution seeking to raise some funds to closing its doors over a frantic 48-hour period . Bank stocks plummeted on contagion concerns, with shares of regional lenders getting hit the hardest. Recently, New York Community Bancorp’s financial troubles reminded the market of the risks still out there for regional banks. NYCB shares suffered a slew of bad news since the start of 2024 when management disclosed a surprise fourth-quarter loss. A leadership shakeup and Moody’s slashing the bank’s credit rating to junk status didn’t help. In a glimmer of hope, NYCB announced last week an over $1 billion capital injection from investors, led by former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital, and shares recovered a bit. The stock, however, dropped nearly 5% on Monday and remained 68% lower year to date. Unlike 2023’s SVB-induced volatility, the troubles at NYCB have not tanked the entire banking industry. The KBW Bank Index was still up 3.5% year-to-date, with many names outperforming, including Wells Fargo. WFC YTD mountain Wells Fargo (WFC) year-to-date performance While seeing a nice climb in the final months of 2023, shares of Wells Fargo have gained 15% since the start of 2024 — making the stock a top performer among major U.S. banks. Over the same stretch, the S & P 500 rose nearly 7.3%. Wells Fargo shares got a big boost after a key win with regulators in mid-February. Days later, the Club trimmed its Wells Fargo position to lock in some profits and to right-size its weighting in the portfolio, which had swelled to nearly 5%. The stock has since hit a 52-week high last Thursday. It’s only fractionally below that level on Monday. The recent leg higher started when Wells Fargo shares shot up more than 7% on Feb. 15 after the Office of the Comptroller of the Currency (OCC) lifted a big penalty related to its 2016 sales practice misconduct. Investors cheered because the regulatory news signaled that Wells Fargo could be one step closer to the Federal Reserve lifting the bank’s $1.95 trillion asset cap , which has been in place for over six years. The February OCC action was believed to be a big reason why the Fed’s balance sheet restrictions were first enforced. “That’s why I think investors really gravitated or rallied around this one getting lifted. Because even though they’ve already had a number of them lifted — and still have many more to go — this was kind of at the heart of the matter for them,” Scott Siefers, Piper Sandler senior banks analyst, told CNBC on Friday. “I think, at least psychologically, it led investors to believe ‘Okay, we’re finally getting closer to the finish line.’” Since Charlie Scharf took over as Wells Fargo CEO in 2019, the bank has cleared six of these consent orders. In a recent Club analysis , we found that these regulatory updates were overall positive for the stock over the past five years. However, a lifting of the Fed’s asset cap is the big one. It would allow Wells Fargo to finally grow its assets again and help rake in more profits. The bank would be able to write more loans, take in more customer deposits, and explore other lines of business. That’s why all strategic attempts to appease regulators are welcome news for shareholders. To be sure, though, the Club largely sees any lifting of the Fed’s asset cap as more of a 2025 story. MS YTD mountain Morgan Stanley (MS) year-to-date performance Conversely, the Club’s other bank stock, Morgan Stanley , has been lagging in 2024 — down 7% year to date. While making made a mysterious 4% push higher on March 4, the Club made a small sale the next day because no specific catalyst could be identified. Such a big move in the absence of any news tends to be unsustainable. The stock has dropped since then. Morgan Stanley’s underperformance was first spurred by a post-earnings slump in January when the firm disappointed shareholders with weak wealth management guidance. Management said at the time the bank was far from hitting management’s previously-held goal of 30% operating margins for the division. “When you get this kind of cautious commentary from a new CEO, my gut says [Ted Pick] is simply trying to lower expectations” to play the under promise, over deliver game, Jim Cramer said following the earnings release. “Plus, Morgan Stanley’s paying you to wait with that 4% yield, and they’re right in there buying with you thanks to their aggressive buyback.” The Club also still sees green shoots for the Wall Street behemoth’s long-dormant investment banking business. While IB was once a very profitable segment of Morgan Stanley, an uncertain macro environment and recession concerns have weighed on the overall deal-making environment — both in companies going public and in mergers and acquisitions activity. This month is a big one on the IPO front for Morgan Stanley, which is among the lead underwriters of the upcoming Reddit offering. It’s not only a high-profile deal with a lot of exposure for Morgan Stanley’s IB division, but the social media company is targeting a big valuation close to $6.5 billion. If the Morgan Stanley places the IPO correctly, Jim said there could be upside for the bank stock. In a Monday filing, Reddit said it aims to price shares in a range of $31 to $34 each in hopes of raising about $750 million. (Jim Cramer’s Charitable Trust is long WFC, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.
Reuters
It’s been a year this week since the collapse of Silicon Valley Bank sent shockwaves through the banking sector. While the crisis most directly affected the regionals, major U.S. financial institutions for most of 2023 also found their stocks under assault. Big banks, like Club holding Wells Fargo, were largely able to turn the corner. The question is still out on the smaller lenders.
March 11 (Reuters) – New York Community Bancorp said on Monday it had closed the $1 billion capital infusion deal that was agreed last week with an investor group and plans to submit one-for-three reverse stock split of its common stock to shareholders.
Joseph Otting, former Comptroller of the Currency in the Donald Trump administration, was named NYCB’s chief executive last week as part of a $1 billion capital injection from a group of investors that included former U.S. Treasury Secretary Steven Mnuchin.
The bank said on Monday it had added Otting, Mnuchin, Milton Berlinski and Allen Puwalski as the new directors of the board, while reducing the board strength to 10 members.
Shares of NYCB rose 5.8% to $3.44 in extended trading on Monday.
The lender said last week that it was seeing interest from non-bank bidders for some of its loans, and will outline a new business plan in April after the bank had slashed its dividend again and disclosed deposits fell 7%.
A surprise quarterly loss and a 70% reduction of its dividend in January hammered NYCB’s stock, which came under pressure again in late February after it said it had found “material weakness” in internal controls and revised its loss to 10 times higher than earlier due to a goodwill impairment charge.
Investment firms Hudson Bay Capital, Reverence Capital Partners, Citadel Global Equities, some institutional investors and certain members of NYCB’s management last week had agreed to participate in the equity investment.
NYCB said it plans to raise the funds through stocks and warrants and investors will own about 39.6% of the company on a fully-diluted basis after the latest fund raising.
Several Wall Street analysts have flagged concerns that the lender’s turnaround will likely take a long time as profits remain under pressure from its efforts to boost reserves for potential bad loans in its commercial real estate portfolio. (Reporting by Manya Saini and Nilutpal Timsina in Bengaluru; Editing by Shounak Dasgupta, Rashmi Aich and Sherry Jacob-Phillips)
New York Community Bank said Thursday it lost 7% of its deposits in the turbulent month before announcing a $1 billion-plus capital injection from investors led by former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital.
The bank had $77.2 billion in deposits as of March 5, NYCB said in an investor presentation tied to the capital raise. That was down from $83 billion it had as of Feb. 5, the day before Moody’s Investors Service cut the bank’s credit ratings to junk.
NYCB also said it’s slashing its quarterly dividend for the second time this year, to 1 cent per share from 5 cents, an 80% drop. The bank paid a 17-cent dividend until reporting a surprise fourth-quarter loss that kicked off a negative news cycle for the Long Island-based lender.
Before announcing a crucial lifeline Wednesday from a group of private equity investors led by Mnuchin’s Liberty Strategic Capital, NYCB’s stock was in a tailspin over concerns about the bank’s loan book and deposit base. In a little more than a month, the bank changed its CEO twice, saw two rounds of rating agency downgrades and announced deepening losses.
At its nadir, NYCB’s stock sank below $2 per share Wednesday, down more than 40%, before ultimately rebounding and ending the day higher. The shares climbed 10% in Thursday morning trading.
The capital injection announced Wednesday has raised hopes that the bank now has enough time to resolve lingering questions about its exposure to New York-area multifamily apartment loans, as well as the “material weaknesses” around loan review that the bank disclosed last week.
Mnuchin told CNBC in an interview Thursday that he started looking at NYCB “a long time ago.”
“The issue was really around perceived risks in the loans, and with putting billion dollars of capital into the balance sheet, it really strengthens the franchise and whatever issues there are in the loans we’ll be able to work through,” Mnuchin told CNBC’s “Squawk on the Street.”
“I think there’s a great opportunity to turn this into a very attractive regional commercial bank,” he added.
Mnuchin said that he did “extensive diligence” on NYCB’s loan portfolio and that the “biggest problem” he found was its New York office loans, though he expected the bank to build reserves over time.
“I don’t see the New York office working out or getting better in the future,” Mnuchin said.
Incoming CEO Joseph Otting, a former comptroller of the currency, told analysts Thursday that the bank would look to strengthen its capital and liquidity levels and reduce its concentration in commercial real estate loans.
NYCB will likely have to sell assets as well as build reserves and take write-downs, according to Piper Sander analysts led by Mark Fitzgibbon.
The bank, which has $116 billion in assets, is evaluating whether it should reduce assets to below the key $100 billion threshold that brings added regulatory scrutiny on capital and risk management, executives said Thursday.
When asked by an analyst about the feared exit of deposits after ratings agency downgrades, NYCB Chairman Alessandro DiNello said the bank got “waivers” that allowed it to keep custodial accounts that otherwise may have fled.
“Now I think given this capital raise, we’re hopeful that that relationship continues to be the way it is,” DiNello said.
While news of the Mnuchin investment is good for regional banks overall, Wells Fargo analyst Mike Mayo cautioned that the cycle for commercial real estate losses was just beginning as loans come due this year and next, which will probably cause more problems for lenders.
— CNBC’s Laya Neelakandan and Ritika Shah contributed to this report.
Correction: New York Community Bank announced an investment from a group of private equity investors on Wednesday. An earlier version of this story misstated the day.
U.S. Treasury yields were little changed on Tuesday, as investors continued to assess the outlook for the U.S. economy and digested the latest round of corporate earnings.
As of around 2:20 a.m. ET, the yield on the benchmark 10-year Treasury note was fractionally higher at 3.5946% while the yield on the 30-year Treasury bond also nudged marginally upwards to 3.8080%. Yields move inversely to prices.
Corporate earnings season dominates this week’s agenda, with giants Johnson & Johnson, Bank of America and Goldman Sachs all set to report before the opening bell on Wall Street on Tuesday.
On the data front, traders will have an eye on the March housing starts and building permits figures due at 8:30 a.m. ET. Housing starts for the month are expected to have fallen by 3.4% to 1.40 million units, according to Dow Jones consensus estimates, while building permits are projected to drop by 4.9% to 1.45 million units.
Markets are closely following economic data for a read on where the Federal Reserve might take interest rates at its next meeting in early May. More than 84% of traders are calling a 25 basis point hike at the next policy meeting, according to CME Group’s FedWatch tool.
An auction will be held Tuesday for $34 billion of 52-week Treasury bills.
