Distressed New York Community Bancorp Raises $1 Billion

NYCB has suffered serious losses on its commercial real estate portfolio.

Will other banks also need to raise capital?

New York Community Bancorp's share price has gyrated wildly after the institution managed to raise $1 billion to cover losses in its commercial real estate portfolio.

NYCB has become the highest-profile victim of problems in the CRE market. While commercial property, including office space, was seen as a safe investment, the sector has been struggling in recent years. Work-from-home policies during COVID have not fully been reversed, and businesses are adapting to new economic realities and embracing remote employment. Landlords are not only left with empty buildings, but higher mortgage payments due to increases in interest rates.

Commercial Real Estate And The Next Financial Crisis
2008’s financial crisis was caused by bad real estate loans. Good job we learn from our mistakes. Right?

Not every bank has the same exposure. NYCB's case is an extreme one, though a concerning precedent. The acquisition of the required capital appears to have been achieved relatively easily, though critics have raised concerns about the way in which it was done.

There are also concerns about how successful the injection of cash will be, given that the CRE crisis may have further to run.

Investor poised to surrender pair of downtown SF properties
A nearly $1 billion investment in downtown San Francisco office towers has been written down to zero, according to an investment firm with serious buyer’s remorse.

The Broader Situation

The banking sector is in a difficult position at present. Many larger banks have significant unrealized losses on their bond portfolios, due to rising interest rates driving down the value of long-term treasuries. Meanwhile, some regional banks are in the same position as NYCB, grappling with distressed CRE portfolios.

The IMF recently warned of the continued risk to the sector, highlighting a "weak tail" of banks with high risk.

Jay Powell has expressed optimism that the situation for regional banks can be contained, albeit with a degree of pain and over a long period of time. Larger banks will likely survive, unless there is an economic shock, or a catalyst such as high levels of customer withdrawals that force them to crystallize the losses on their bond portfolios. It remains unclear whether there will be further banking failures, or whether contagion outside the sector will arise.

As Warren Buffett points out, it's only when the tide goes out that you find out who has been swimming naked.


Subscribe to our newsletter and follow us on X/Twitter.

Great! You’ve successfully signed up.

Welcome back! You've successfully signed in.

You've successfully subscribed to REX Wire.

Success! Check your email for magic link to sign-in.

Success! Your billing info has been updated.

Your billing was not updated.