Shares in New York Community Bancorp
plunged another 22% on Tuesday, continuing a sell-off that began last week when the lender disclosed a surprising quarterly loss, and leaving the company on course to lose more than half of its value at current levels.
The frenetic selling since Wednesday has also knocked down peers' shares, raising additional concerns about the industry's health, which has been concerned for months about exposure to the troubled commercial real estate sector.
The bank last week set aside higher-than-expected provisions for future bad loans, owing mostly to its exposure to CRE, where multiple borrowers are at risk due to high interest rates and low occupancies.
"There's a lot of anecdotal evidence that it's grim out there in CRE, and it may be even worse than people are letting on, at least in terms of office real estate," said Russell Hackmann, founder of Hackmann Wealth Partners.
U.S. Treasury Secretary Janet Yellen noted CRE worries and stated that the Financial Stability Oversight Council, a group of regulators, was looking into the situation.
The KBW Regional Banking index fell approximately 1.4% on Tuesday. The index has been affected, despite analysts highlighting that the troubles at NYCB were confined to its balance sheet.
The lender's assets surpassed the $100 billion mark after purchasing Signature Bank last year, subjecting it to tighter regulatory obligations and necessitating a dividend cut to create capital.
Bloomberg News reported on Monday that the bank's decision to cut its payout was prompted by rising pressure from the Office of the Comptroller of the Currency, a senior banking regulator.
The lender's market value has dropped to around $3.5 billion since its earnings announcement, a long cry from its peak of around $10 billion in August.
At least 13 brokerages have downgraded or reduced their price estimates for the bank's stock since the results report.
Fitch also cut the bank's credit rating last week, citing additional regulatory requirements that the agency claims will limit NYCB's "flexibility" as it concentrates on capital growth.
The level of the provisions taken by the bank was also "outside Fitch's baseline expectations," according to the ratings agency.
On Tuesday, shareholders filed a proposed class action lawsuit against NYCB for allegedly hiding deterioration in its loan portfolio. The complaint was filed in Brooklyn Federal Court.
Increases option activity.
The decline in NYCB's stock price has sparked increased activity in the options market. According to Trade Alert data, NYCB options were trading at a rate 11 times higher than usual.
The statistics indicated that put options, which are normally purchased to convey a negative or defensive position, outpaced calls, which are generally a bullish move, by roughly 5 to 1.
The bank's 30-day implied volatility — or how much traders expect the bank's shares to move in the near term — increased to 170%, the highest level in at least four years, Trade Alert reported.
The Regional Banking exchange-traded fund
Options activity also increased, albeit at a more mild level, indicating that investors were more interested on NYCB's prospects than the broader regional banking sector.
The ETF's 30-day implied volatility fell to 33%, down roughly a point from the three-month high reached on Wednesday, according to the data.
The drop in NYCB's stock has benefited short sellers, who profit from falling stock prices. According to Ortex data, such investors have generated around $159 million in paper profits on NYCB since the company disclosed its results.
