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Commercial real estate loans put pressure on another regional bank - Scotsman Guide

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NYCB's troubles spark fears of another regional banking crisis

New York Community Bancorp's (NYCB) stock price plunge in recent days left some observers fearing that the regional bank's troubles could be a signal that the banking sector is facing another round of failures due, in part, to bad commercial real estate loans.

The bank, which saw Moody's Investors Service lower its credit grade to junk status, suffered a drop of 70% in its stock price before recovering toward the end of the week. The recent troubles for NYCB began when the bank announced on Jan. 31 that it suffered a surprise loss of $252 million in the fourth quarter of 2023. The bank had notched a $172 million profit for the same period in 2022. It also reported $552 million in losses from bad commercial real estate loans. The hobbled bank slashed its quarterly dividend from $.17 per share to $.05 per share.

This might be just the beginning of tough times for NYCB, however. The bank's poor performance was being blamed on the acquisition last year of $40 billion of assets from Signature Bank, which was among the three banks that failed early last year. Those failures set off alarm bells that the banking sector was in danger due to an increasing number of commercial real estate defaults.

NYCB is in the process of merging with Flagstar Bancorp, Inc., which operates 420 branches throughout the country, with an emphasis on the Northeast and Midwest. The acquisition of Signature Bank and merger with Flagstar makes the combined company one of the largest regional banks in the country, with more than $100 billion in assets. NYCB plans to start operating under the Flagstar name later this month.

There are worries that the troubles facing NYCB could spread to other top regional banks also holding loans for commercial real estate, including office buildings and retail properties, which could sour in the coming months and potentially create a repeat of last spring's bank crisis.


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