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Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.
US regional banks aren’t out of the woods but. Having ridden out a deposit flight that led to the collapse of Silicon Valley Bank and First Republic final 12 months, the problem for a lot of shall be discovering a strategy to improve income once more in 2024.
Chief among the many obstacles are funding prices and publicity to the troubled business actual property sector. The 44 per cent collapse in New York Community Bancorp’s share value this week is a reminder of how powerful navigating these two roadblocks shall be.
The New York-based lender this week set off a recent wave of promoting in regional banking shares after it swung to a shock fourth-quarter loss, slashed its dividend and put aside lots of of tens of millions of {dollars} in provisions for potential unhealthy loans in its CRE portfolio.
At first look, NYCB’s woes seem distinctive to its stability sheet. Executives mentioned the acquisition of Signature Bank, one of many regional banks that collapsed final 12 months, pushed NYCB’s property above a $100bn regulatory threshold. That requires it to carry extra capital and liquidity. NYCB’s choice to chop its quarterly dividend by 70 per cent helps meet these regulatory necessities.
But that’s solely a part of the story. High funding prices is the opposite.
NYCB paid a mean charge of three.62 per cent on its interest-bearing deposits within the fourth quarter, up from 1.93 per cent a 12 months in the past. That compares with the two.78 per cent its far bigger peer JPMorgan paid that interval. At the identical time, NYCB’s mortgage progress has stalled, with the typical mortgage stability down quarter on quarter.
That is squeezing profitability. Its internet curiosity margin fell 45 foundation factors to 2.82 per cent quarter on quarter. That is predicted to fall additional in 2024. Net curiosity revenue may fall by as a lot as $300mn this 12 months.
Then there may be the business actual property dilemma. Most banks wish to scale back their publicity to this $5.8tn market. A report quantity of loans are maturing and want refinancing this 12 months and subsequent. Yet they want curiosity from the high-yield loans to finance the beneficiant deposit charges required to draw savers.
Among regional banks, Bank OZK and Valley National Bancorp stand out, with excessive publicity to CRE loans however low CRE reserve ratios, in accordance with Morgan Stanley analysis. At OZK, CRE loans make up some 63 per cent of the financial institution’s incomes property.
Repercussions from final 12 months’s regional financial institution disaster proceed to roil the sector. More CRE writedowns will imply smaller regional banks have extra firefighting to do.
This article has been amended to mirror how a lot internet curiosity revenue may fall by this 12 months
https://www.ft.com/content/85fc36e2-35a2-481a-9163-d814c63406a1
