© Reuters. FILE PHOTO: A screen displays the trading information for New York Community Bancorp on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 31, 2024. REUTERS/Brendan McDermid/File Photo
(Reuters) – U.S. regional banking stocks could come under pressure on Friday following a brutal sell-off sparked by New York Community Bancorp (NYSE:)’s earnings that renewed investor focus on the lenders’ exposure to the troubled commercial real estate sector.
NYCB on Wednesday boosted its provisions for credit losses by 345%, part of which was allocated to its commercial real estate (CRE) portfolio, re-igniting worries over defaults as high interest rates and remote work dampen office demand.
NYCB’s shares have nearly halved in value over the last two sessions, while the KBW Regional Banking Index, a key gauge of the banking industry, has plunged nearly 8% over the period.
The stock reaction has hit investor confidence to re-engage in bank stocks, BofA analysts said.
“It could potentially cause investors to take a wait-and-watch approach until additional visibility emerges on macro, Fed policy and earnings per share outlooks.”
Meanwhile, shares of Japan’s Aozora Bank slumped to a three-year low in Tokyo after it took a huge loan-loss provision against U.S. office loans.
The disclosure from Aozora Bank on Thursday “lit a match” to underlying CRE fears but the reaction in U.S. bank stocks was overdone, Citi analyst Keith Horowitz said.
“We remain constructive long term on the regional banks. Our general view is that the large cap banks in our universe have been very focused on relationship lending and we don’t view foreign bank CRE as the best data point,” Horowitz said.