CCTV Script 08/03/24

— This is the script of CNBC's news report for China's CCTV on March 08, 2024.

One year after Silicon Valley Bank's bankruptcy, another American regional bank experienced turbulence that attracted attention, the  New York Community Bank (NYCB). In the past month, NYCB changed its CEO twice, got downgraded by rating agencies, and volatile stock price.

Last Friday NYCB reported issues in its loan review process, resulting in a $2.4 billion goodwill impairment. Therefore its fourth-quarter loss was revised to $2.71 billion from $260 million. Credit rating agencies Fitch and Moody's downgraded NYCB's credit rating after this, causing a 23% drop in stock price on that day.

On Wednesday morning this week, The Wall Street Journal reported that NYCB is seeking external capital to support its balance sheet. Following this news, NYCB's stock price plummeted over 40%, leading to a temporary trading halt due to volatility until it announced a successful fundraising. This led to a V-shaped rebound in its stock price, ultimately closing up over 7%.

The infusion of capital into NYCB came from a group of private equities led by former U.S. Treasury Secretary Steven Mnuchin. Mnuchin's fund, Liberty Strategic Capital, led with a $450 million investment, totaling over $1 billion in capital for NYCB.

Mnuchin's involvement raised expectations, given his previous success in rescuing another lending institution, IndyMac Bank, during the financial crisis. In an interview with CNBC, Mnuchin expressed confidence in turning the situation around.

Steven MnuchinFormer U.S. Treasury Secretary and Liberty Strategic Capital founder and managing partner 

"With putting a billion dollars of capital into the balance sheet, it really strengthens the franchise and whatever issues they are in the loans we'll be able to work through. I think there's a great opportunity to turn this into a very attractive regional commercial bank."

The critical issues contributing to NYCB's crisis are related to commercial real estate. Firstly, in the context of high interest rates, the valuation of commercial real estate projects rapidly declined due to the rise in interest rates. For banks, the decrease in the value of mortgaged assets can lead to an increase in the "loan-to-value ratio (LTV ratio)", the ratio of the loan amount to its collateral value. In extreme cases, the size of the loan may exceed the market value of the mortgaged real estate, putting pressure on the bank's asset structure.

Then is the issue of rental payments. Commercial real estate borrowers typically rely on rental income to repay loans. The current high interest rates increase the cost of refinancing, but many of NYCB's borrowers are rent-regulated properties. This means borrowers cannot offset the rising refinancing costs by raising rents, posing a risk of default on loans.

Approximately 22% of NYCB's total loans are granted to real estate properties with at least one rent-regulated apartment. This risk exposure is much higher compared to other banks, where it is only a single-digit percentage.

Now the market is concerned about whether Mnuchin can stabilize the confidence of NYCB depositors and prevent a run on deposits. Additionally, there is ongoing scrutiny on whether commercial real estate will continue to face issues amid the backdrop of high interest rates. We will look at these developments.