Regional Bank Stocks Look to Stabilize After Recent Turmoil

Regional bank stocks are showing signs of stabilization following a two-day selloff prompted by New York Community Bancorp's unexpected loss and significant reserve increase.

The sector has been under pressure since the announcement on Wednesday, when the lender revealed a $552 million addition to its loan-loss provision, primarily related to real estate loans, along with a dividend cut.

After plunging to levels not seen in 24 years on Thursday, NYCB stock appears to be temporarily halting the slump, with a 2.3% early Friday increase.

Investors and analysts are carefully evaluating the aftermath of this development, particularly in light of last year's regional bank crisis.

While J.P. Morgan's Kabir Caprihan stated on Thursday that this isn't necessarily a repeat of 2023, he did highlight that two banks, Zions Bancorp and M&T Bank, have lower reserves on office real estate loans compared to their peers. According to Caprihan's analysis, Zions' loss reserves on office properties stood at 3.8% of loans, while M&T Bank's were at 4.4%, both notably lower than New York Community Bank's 8% after its recent accrual.

Despite NYCB shares initially showing signs of recovery, the selloff persisted for a second day on Thursday. The bank's shares, which experienced a 38% decline on Wednesday, closed Thursday at $5.75, marking the lowest level since 2000.

The KBW Regional Banking Index declined by 2.3% following its 6% decrease in the previous session. Western Alliance Bancorp saw one of the sharpest falls, slipping by 7.5%, while Zions Bancorp fell by 6% and M&T Bank dropped by 5%. All three stocks were relatively stable ahead of Friday's opening.