Do you still remember last year's Silicon Valley bank collapse in the United States? In less than a year, a similar storm made a comeback.
On January 31st local time, the New York Community Bank released its explosive financial report, which alarmed Wall Street.
In the Silicon Valley bank crash last year, Signature Bank, which went bankrupt together, was taken over by this New York community bank. So, this thunderstorm incident is particularly concerning.
As soon as the news came out, the stock price of this bank plummeted by over 40% at the opening and 38% at the closing. As a result, regional banks in the United States have generally fallen, with the KBW regional banking index falling by 6%, marking the worst performance since the collapse of Silicon Valley banks in March last year.
Analyst Mark Fitzgerald said that Wall Street doesn't like this kind of scare: "It tore off the band aids we used to put on."
After taking over the market, I also exploded with lightning
This shocking financial report from Wall Street shows that New York Community Bank had a loan loss provision of up to $552 million and a loss of up to $252 million in the fourth quarter of last year.
In the last three months of last year, the bank's loan balance overdue for 30-89 days surged by nearly 50%, and the company also cut dividends from 17 cents per share to 5 cents.
This greatly exceeded Wall Street's expectations. Previously, analysts expected the bank to make a profit of $206 million in the fourth quarter.
Now it seems that the Thunderstorm of New York Community Bank is actually related to the acquisition of Signature Bank. In 2023, when New York Community Bank took over Signature Bank from the Federal Deposit Insurance Corporation, it took on $25 billion in deposits and nearly $13 billion in loans.
Due to the rapid expansion of asset size after market takeover, which far exceeded market expectations, more capital and loss provisions need to be reserved, leading to a deterioration in credit prospects.
"This is a real negative surprise," said analyst Afstrom. The management of New York Community Bank was previously proud and boasted about strong asset quality, but now their tone has clearly changed.
After the news of the thunderous financial report from the Community Bank of New York, the yield of the US two-year treasury bond bonds plunged by 15 basis points, and the yield of the 10-year US treasury bonds also plunged by 10 basis points.
Moody's has placed all long-term and short-term ratings and evaluations of New York Community Bank and its subsidiaries on a potential downgrade watchlist. Moody's stated that this rating action reflects New York Community Bank's substantial decline in unexpected losses, weak profits, capitalization, and increasing reliance on wholesale financing.
Hidden dangers of US banks
This thunderstorm once again reminds investors of the systemic banking crisis caused by the collapse of Silicon Valley banks last year.
On March 8, 2023, Silicon Valley Bank (SVB) announced a fundraising of $2.25 billion to offset bond investment losses. This news quickly triggered a decline in market confidence, with customers queuing up to withdraw their deposits.
The run on stocks has brought a series of chain reactions: on March 9th, the stock price of the parent company of the bank plummeted by 60%, the largest drop in over 20 years. Investors and depositors withdrew a total of $42 billion in deposits, causing the bank's cash balance to drop to negative $958 million. On March 10th, the stock price of the bank was suspended from trading after another 60% drop before trading.
In the end, the US government could only intervene, and the California Department of Financial Protection and Innovation (DFPI) announced the closure of Silicon Valley banks and handed them over to the Federal Deposit Insurance Corporation (FDIC) for takeover.
This is the largest bank bankruptcy in the United States since the 2008 financial crisis, with multiple technology companies becoming direct victims, and another bank, Signature Bank, also going bankrupt along with it.
Afterwards, the Federal Deposit Insurance Corporation (FDIC), which took over Silicon Valley Bank, issued a statement stating that US Treasury Secretary Yellen had approved measures to ensure that the FDIC's disposal of SVB would "fully protect all depositors.".
Time has passed, and although US President Biden and Wall Street have claimed that the banking industry in the United States has stabilized, some investors still say that the thunderstorm at community banks in New York highlights ongoing concerns about the health of regional banks.
Customer portfolio manager Brian said, "The banking industry is more susceptible to emotional trading as depositors may feel that a collapse is imminent. However, for many banks, higher interest rates have been affecting returns and net interest income."
Especially in the context of the Federal Reserve raising interest rates.
During the COVID-19, the Federal Reserve implemented quantitative easing policy and promised to maintain zero interest rates. The low interest rate environment has driven the enthusiasm of technology companies for financing, and as a result, banks in the United States have profited, absorbed a large amount of deposits, and invested most of the funds in long-term US government bonds.
At that time, market interest rates were close to zero, and even if the US government's long-term bonds only paid a few percentage points of interest, banks were still profitable.
But after the relaxation of epidemic control measures in the United States, in order to curb high inflation, the Federal Reserve changed its strategy and launched a fierce interest rate hike. The high borrowing costs affected the financing of technology companies and also affected the banks that relied on these companies.
At the same time, under the environment of interest rate hikes, the return on long-term US government bonds has decreased, and banks that have purchased many US bonds have naturally suffered heavy losses.
On January 31, 2024, the Federal Reserve decided to maintain interest rates unchanged. Federal Reserve Chairman Powell stated that if the economy develops as expected, the Federal Reserve will begin to adjust its policy intensity. But interest rate cuts are not appropriate until there is greater confidence to ensure that the inflation rate is moving towards 2%.
Economists speculate that the Federal Reserve may need to observe data for 3-4 months before making a decision to cut interest rates.
Here is a signal from the Federal Reserve to maintain interest rates unchanged, and there is a thunderstorm in community banks in New York. It can be foreseen that in the coming months, the pressure on banks in these regions of the United States is likely to only increase.
From the controversy surrounding community banks in New York, it can be seen that the market is still concerned about the health of banks in the United States, especially after a wave of interest rate hikes. The deposit interest that banks have to pay will drag down the income from loan interest rates, leading to a decrease in net income.
"Many of us believe that the warnings we see from the New York Community Bank are like cockroaches - if you see one, there must be more cockroaches hiding where you can't see them," said Sosnick, Chief Strategist at Yingtou Securities