New York Community Bancorp Stock Continues to Slump
New York Community Bancorp stock experienced another significant drop on Tuesday, with shares falling by 18% to $4.44 by early afternoon. The stock's trading volume reached a staggering 79 million shares in just a few hours, which is over five times the average daily turnover.
Dividend Cut and Increased Loan-Loss Reserves Impact Stock
Last week, NYCB surprised the market by announcing a dividend cut and a half billion dollar increase in loan-loss reserves. Since then, the stock has lost 57% of its value. This shockwave has not only affected NYCB but also had a ripple effect on bank stocks of all sizes. The SPDR S&P Regional Banking exchange-traded fund, for example, declined by 11% in the week following NYCB's announcement, reaching $46.85.
Small Banks Have Failed Investors
While small banks like NYCB are often seen as community pillars, their performance in the market has not been favorable to investors. Nicholas Colas from DataTrek Research highlights that the long-term chart of the regional banking ETF shows little growth since 2006. It has remained relatively flat over the years.
No Significant Increase in Dividend Payout
In addition to its stagnant performance, the regional banking ETF's dividend payout has shown minimal growth over time. In 2006, the annual dividend payout was $1.44 per share. By 2023, it had only increased to $1.57. This 9% growth over a decade and a half is quite disappointing, especially when compared to the significantly higher dividend payouts of the S&P 500 and JPMorgan Chase.
In conclusion, the recent struggles faced by New York Community Bancorp serve as a reflection of the larger challenges faced by small banks in the market. Investors have found little solace in this sector, and the lack of significant growth in dividends further adds to their disappointment.
The Potential for Consolidation in the Regional Banking Sector
Even with the recent decline in the regional bank ETF, its dividend yield remains at a meager 3%. In comparison, investors can secure a 4% yield through a 10-year Treasury, without having to worry about the risks associated with another NYCB.
Consolidation has become the recommended remedy for the fragmented state of America's banking industry. However, due to high interest rates and the repercussions of failures like Silicon Valley Bank, mergers were relatively scarce in the previous year. These circumstances led to a decrease in stock values, hindering potential consolidators from acquiring other banks.
However, according to Laurie Hunsicker, an analyst at Seaport Research Partners, there is a glimmer of hope on the horizon for 2024. Last year's high interest rates compelled many banks to devalue their securities holdings, resulting in catastrophic consequences for Silicon Valley Bank in particular.
Hunsicker suggests that if the Federal Reserve decides to reduce rates during the latter half of this year, it could lead to an increase in banks' book values. This rise in value would subsequently lift regional bank share prices and act as a catalyst for renewed deal activity.
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