Will NYCB stop US regional bank M&A in its tracks?
After a dire couple of years, the hope had been that the only way was up for US regional bank M&A. But this week’s trauma at New York Community Bank has demonstrated some of the problems that can catch out the unwary as expansion takes them into new regulatory territory.
If anyone needed a reminder of the biggest challenges with US regional bank mergers, they got it on Wednesday. New York Community Bank, reporting its full-year earnings, faced the embarrassment of telling investors that the acquisition of parts of Signature Bank in March 2023 had pushed it to a $100 billion balance sheet more quickly that it had expected.
As a Category IV bank, NYCB now faces more stringent capital and liquidity requirements from regulators, as well as pressure to meet the provisioning expectations that investors have of its newish peer group. Scrambling to meet the challenge, NYCB cut its dividend, ramped up its provisioning – in particular against its commercial real-estate (CRE) portfolio – and posted a fourth-quarter loss that shook the market.
Investors simply hated the news, sending the stock tumbling more than 40% at the open on Wednesday. By the close of the following day, it had drifted even lower.
One bright spot was that analysts were generally quick to label the bank as an outlier, criticising its management for having been caught apparently by surprise.