U.S. regional bank stocks on Friday recovered slightly from a brutal two-day sell-off sparked by investor concerns that New York Community Bancorp's dismal earnings signaled broader problems for the sector.
The KBW Regional Banking Index gained 0.6% after initially dipping early in the trading session. If it holds the gains, the index will post its first positive day after three consecutive sessions of losses.
NYCB shares, which fell nearly 45% over the last two sessions after the lender slashed its dividend and posted a surprise loss on commercial real estate (CRE) loans, were up more than 7% on Friday.
Raymond James on Friday said in a note that its analysts who participated in a webinar the firm hosted with NYCB's management "came away comforted" that the bank's deposits are very stable.
"Given deposit stability, the recent reserve build, still strong capital, and proactive cooperation by management to achieve new regulatory requirements, we believe the stock appears attractive for more aggressive investors with a longer term view," the brokerage said.
Shares of Valley National Bancorp, Citizens Financial Group and some other mid-size banks also posted slim gains.
"We believe as the market continues to appreciate the value enhancing actions NYCB has taken the share price will recover," a NYCB spokesperson said in an email on Thursday afternoon.
CRE fears
NYCB, a major CRE lender in New York, on Wednesday boosted its provisions for credit losses by 345%, part of which was allocated to its CRE portfolio. NYCB said it took a hit on two separate loans.
"Part of NYCB's 45% two-day plunge was due to the bank not being diversified from a loan perspective," said CFRA analyst Alexander Yokum. "NYCB is overweight both commercial real estate office and multi-family loans and thus recent deterioration in these areas has had an outsized impact on the company."
The bank's disclosure re-ignited some investor worries that other lenders may be forced to crystallize CRE losses amid high interest rates and lingering pandemic office vacancies.
The Federal Reserve this week held rates steady while Fed Chair Jerome
Powell said inflation remained too high, prompting traders to reprice the expected first rate cut from March and into May, according to futures data. Several banks have warned that elevated borrowing costs could lead to more borrowers defaulting on their loans this year.
Meanwhile, shares of Japan's Aozora Bank slumped to a three-year low in Tokyo after it took a huge loan-loss provision against U.S. office loans.
Some investors said data released on Friday showing that U.S. job growth surged last month at well above the pre-pandemic pace and wage growth accelerated was a positive for lenders.
"For commercial banks, this should improve the outlook. There's a lot of worry about defaults rising, but if the labor market is still humming, defaults shouldn't rise too quickly," said Brian Jacobsen, chief economist at Annex Wealth Management.