NYCB's slide sparks fears of more banking and commercial real estate turmoil

• New York Community Bancorp stock has plunged 60% in recent days to a near 27-year low.
• The regional bank reported disappointing earnings, stoking fears of commercial real estate trouble.
• Regional banks ran into trouble last year as rate hikes hit their bond and CRE portfolios.

A smaller lender is facing a firesale of its stock fueled by concerns about its stability, echoing the regional-banking problems last year that stoked fears of a full-blown financial crisis and commercial real estate meltdown.

Here's a rundown of what's happened at New York Community Bancorp, and why it matters.

Earnings disappointment

NYCB is the parent company of Flagstar Bank — one of America's biggest regional lenders with 420 branches — and the second-largest lender to the multifamily-property space.

It incurred a surprise $260 million net loss in the fourth quarter, after posting $199 million of net income the previous quarter, its earnings report on January 31 revealed.

NYCB also set aside $552 million to cover loan losses — a huge jump from $62 million in the third quarter. Net charge-offs, or debts unlikely to be recovered, totaled $185 million compared to $24 million in the third quarter, largely due to a co-op loan and an office loan.

Moreover, it slashed its dividend from 17 cents to 5 cents in an effort to build up capital.

The bank's efforts to clean up its finances stemmed in part from it crossing $100 billion in assets following two acquisitions in the past 18 months. It bought deposits and some loans from Signature Bank, which collapsed last spring along with Silicon Valley Bank and Silvergate.

Banks of that size are subject to greater regulatory insight. Indeed, Bloomberg reported that regulators have been pushing the lender to improve its capital position.

Moody's slashed NYCB's credit rating to junk on Tuesday, per Bloomberg. The credit-ratings agency cited myriad financial risks, as well as governance issues after the departure of audit and risk executives in recent months.

NYCB's deteriorating financials, combined with the Moody's cut, spurred investors to slash its stock price by 60% in five days to its lowest level since 1997, reducing its market capitalization by $4.5 billion.

NYCB sought to reassure Wall Street on Tuesday by releasing unaudited financial information as of February 5. The bank's deposits have grown this year to about $83 billion, with insured and collateralized deposits making up 72% of the total.

It also reported $37.3 billion in total liquidity, exceeding its uninsured deposits, and had about $17 billion in cash.

"We took decisive actions to fortify our balance sheet and strengthen our risk management processes during the fourth quarter," CEO Thomas Cangemi said in a statement, adding that its goal was to enhance its risk management to match its increased size and complexity.

He also noted that NYCB is working to bring in a new chief risk officer and chief audit executive.

Why are investors worried?

NYCB's unexpected loss, combined with its decision to pare shareholder payouts and make a large provision for bad loans, has fanned fears that its loans and assets in the commercial and multi-family real estate sectors are in trouble.

Investors are undoubtedly wary of that after smaller lenders were caught off-guard last year by the Federal Reserve's rapid interest rate hikes.

The increases hit the value of their fixed-income and commercial real estate portfolios. In particular, commercial real estate is under pressure from ongoing remote working, tighter credit availability as lenders have pulled back, and higher debt costs, all of which have weighed on asset values.

Treasury Secretary Janet Yellen told lawmakers this week she expects the commercial real estate pressures to "put a loss of stress" on property owners, although she expected it to be manageable, Bloomberg reported.

In short, investors appear worried that NYCB could be a canary in the coal mine for regional banks and commercial real estate, and are bracing for the next domino to fall.