Shares of New York Community Bancorp collapsed by a third, pulling all regional banks with a combined drop of more than 6 percent, the biggest one-day drop since March 13, 2023.
Challenges in Loan Loss Provisions and Bank's Asset Profile
The problem is the accumulation of loan loss provisions 6.3 times since the beginning of the year and nearly 9 times by Q4 2023.
The bank is quite large, with assets of $116 billion, the majority of which are invested in loans. Its deposit base amounts to $81.4 billion.
Measures
In the report, the bank stated that it reduced its dividend because it has grown significantly in size and importance, necessitating a more mature approach to its operations. The bank also announced proactive measures to bolster its capital, fortify its balance sheet, and enhance its risk management processes, particularly as it evolves into a large institution with assets exceeding $100 billion. Nothing significant, but echoes of the crisis are still wafting around Wall St.
The problems are structural - deteriorating loan quality due to tight financial conditions and shrinking margins at small and medium-sized banks as the deposit base is pumped into megabanks.
Conclusion
Overall, the significant collapse of New York Community Bancorp is indicative of structural problems in the banking industry caused by the accumulation of loan loss reserves and the need to mature operations as the bank grows. Broader issues related to deteriorating loan quality and shrinking margins at smaller banks persist, underscoring ongoing concerns in the financial industry.