It appears the regional banking turmoil we saw proliferate last year isn’t over quite yet. New York Community Bancorp (NYSE:NYCB) remains in focus for many investors, with NYCB stock hitting its lowest levels in decades today. The stock is down more than 40% at the time of writing, as the embattled regional lender announced plans to raise equity capital to bolster its balance sheet.
Now, regaining investor confidence in the bank may be difficult. The company has slashed its dividend and increased loan loss provisions, as the company suggested to investors that its risk management processes weren’t up to snuff. That led to the departure of its current CEO. Investors are clearly looking for other options in the financial sector.
Let’s dive into what to make of this move and why the stock is down so much today.
Why Is NYCB Stock Plunging Today?
The above-mentioned headwinds facing New York Community Bancorp are significant. After acquiring Flagstaff Bancorp and Signature Bank (which was at risk of failure tied to commercial lending activity during the previous regional bank selloff), investors initially cheered this move. Acquiring assets at a depressed value is generally a good thing. However, it turns out many of the assets acquired (commercial loans) were not of the quality the management team thought at the time.
Risks tied to commercial real estate are real and have led to credit downgrades from Moody’s. The bank is expected to raise its loan loss provisions in the coming quarters. Thus, with a declining stock price, now isn’t a great time to be seeking equity capital.
The company’s increased size has also led to more stringent capital requirements, something that may be forcing this capital raise. For now, investors looking at value within the regional banking space have other options to consider, and it appears many investors are doing just that. Others, and by all accounts, most market participants, appear to be focusing their investment dollars on the mega banks, with much more solid balance sheets.
For now, NYCB stock looks to be in trouble, and there’s a reason why some investors may be thinking this bank is the next domino to fall. We’ll have to see how everything plays out, but it’s my perspective that NYCB stock may be too risky to own at current levels, knowing what we know now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
