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NYCB’s Dividend Cut Sparks Sharp Decline in Regional Bank Stocks |
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On Wednesday, regional U.S. bank stocks took a hit, primarily triggered by a staggering 38% decline in the shares of New York Community Bancorp (NYSE:NYCB). The bank’s decision to reduce its dividend and the unexpected posting of a loss reignited concerns about the overall health of similar lenders. The KBW Regional Banking Index experienced a 6% decline, marking its most substantial one-day drop since March 13 of the previous year when New York’s Signature Bank (OTC:SBNY) collapsed, causing depositor panic following the recent failure of Silicon Valley Bank. While deposits have stabilized since then, Wednesday’s sell-off underscored lingering worries about the health of regional lenders. Some investors expressed concerns that the cost of maintaining deposits could squeeze net interest income (NII), a crucial factor driving lending profits. The market appeared caught off guard by the sell-off. Traders in options linked to the SPDR S&P regional bank exchange-traded fund, who had previously shown a bullish bias, shifted their positions on Wednesday, opting for a more pessimistic outlook. Put options, indicating a bearish sentiment, outnumbered calls, typically seen as a bullish play, by a ratio of 3-to-1. The Federal Reserve’s decision to leave interest rates unchanged on Wednesday further fueled investor apprehension. High rates aimed at controlling inflation have impacted regional bank loan profits and the value of the securities they hold. Shares of Valley National Bancorp (NASDAQ:VLY), Citizens Financial (NYSE:CFG) Group, and Regions Financial Corp (NYSE:RF) dropped between 4% and 7.8%. Despite the widespread sell-off, some analysts and investors argued that NYCB’s issues were largely specific to its balance sheet, and regional bank shares were not experiencing the same pressure seen in March of the previous year. NYCB’s shares initially plummeted by as much as 46% during morning trading but later recovered some losses. Moody’s (NYSE:MCO) announced a review for a possible downgrade of the bank’s ratings due to weak earnings, capital decline, and increased reliance on wholesale funding. NYCB, which crossed the $100 billion regulatory threshold with assets of $116.3 billion, explained that its acquisitions, including those of Signature Bank’s assets and Flagstar Bank in 2022, led to this milestone. The bank announced a 70% reduction in its dividend and plans to build capital to strengthen its balance sheet. Shares of banks just below the $100 billion threshold also experienced declines, with Zions ($87 billion) and Comerica (NYSE:CMA, $85 billion) falling nearly 5.7% and 5.4%, respectively. Analysts noted that crossing the $100 billion threshold serves as a reminder for banks to prepare for stricter capital and liquidity requirements. Ken Usdin, an analyst at Jefferies, emphasized that Comerica and Zions had already undergone a rigorous infrastructure ramp-up for stress testing and other requirements. NYCB analysts expressed surprise and at times frustration with the bank’s management for providing insufficient details, particularly regarding its NII forecast. NYCB reported an adjusted loss of $185 million, largely attributed to a substantial $552 million provision for credit losses, mainly allocated to its commercial real estate portfolio, which, like many lenders, has been under pressure due to lingering pandemic-related office vacancies. |
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Market Movers |
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Qualcomm (NASDAQ:QCOM) experienced volatility following its better-than-expected first-quarter results and optimistic second-quarter guidance, driven by a resurgence in demand for smartphone chips. Despite an initial spike, shares retreated by 2% as the company cautioned about some customers still managing inventory challenges. Align Technology (NASDAQ:ALGN) witnessed a 10% increase after reporting robust financial results for the fourth quarter, coupled with a positive revenue outlook. The company anticipates a slight uptick in both clear aligner volume and average selling prices in the upcoming quarter. Aflac (NYSE:AFL) saw a 3% decline subsequent to reporting fourth-quarter earnings per share that fell short of estimates. Rocket Lab USA, Inc. (Nasdaq: RKLB) faced a 10% decrease as it initiated a private offering of $275 million aggregate principal amount of convertible senior notes due 2029. Nextracker Inc. (NXT), a provider of intelligent solar tracker and software solutions, surged 20% following its third-quarter report, which surpassed consensus estimates for EPS, revenue, and guidance. The company exhibited a remarkable 37% year-over-year revenue growth. Boot Barn Holdings (NYSE:BOOT) experienced a 3.5% decline, despite outperforming consensus estimates in the third quarter, as its fourth-quarter EPS estimate proved less favorable than anticipated. Paramount Global (PARA) gained 2% after the market close, fueled by reports that the company took preliminary steps toward a potential sale by establishing an independent committee separate from its controlling shareholder, according to the New York Post. |
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Ancora Holdings-Led Investor Group Targets CEO Ouster with $1 Billion Stake in Norfolk Southern An investor group led by Ancora Holdings has acquired a substantial stake of approximately $1 billion in Norfolk Southern (NYSE:NSC) and has put forth a majority slate of directors with the aim of removing CEO Alan Shaw, as reported by the Wall Street Journal. The nominated directors include former Ohio Governor John Kasich and Sameh Fahmy, a former executive at Kansas City Southern (NYSE:KSU). In recent weeks, Norfolk Southern, one of North America’s top-five largest railroad operators by revenue, engaged with the investor group. The nominated directors have raised concerns about the company’s handling of a train derailment last year and their perception of Shaw’s failure to meet operating targets. The incident involved a Norfolk train derailing near East Palestine, Ohio, causing a temporary evacuation of residents. Norfolk Southern’s fourth-quarter profit, reported last week, fell below analysts’ expectations due to lower revenue in merchandise, intermodal, and coal businesses. Hedge funds Sachem Head Capital Management and D.E. Shaw have also been increasing their stakes in Norfolk Southern. The freight railroad industry has been operating in a low-volume environment due to changes in U.S. consumer spending post-pandemic, coupled with global shipping delays shifting from goods to services. |
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Investing is like a sophisticated game of Monopoly, where you trade in your colorful bills for real ones. Sure, there’s no “Get Out of Jail Free” card, but with savvy investment choices, you might just pass “Go” and collect a dividend instead. So, roll the dice, diversify your assets, and remember, in the world of investing, the only thing riskier than a bear market is playing it too safe. |
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