We have been warning for some months that despite the swift action of the Federal Reserve and the Swiss National Bank in containing the issues with Signature Bank, Silicon Valley Bank and Credit Suisse last March-May, this could well have been heralding problems further down the line.
Now the cracks are starting to appear. Last night (31st January), New York Community Bancorp, which acquired part of Signature Bank last year, cut its dividend from 17 cents to five, and raised its provision for loan losses to $552M, an order of magnitude larger than analyst expectations. The company has said that it wants to build up its reserves in order both to align with its peer group and to be prepared for any further weakness in commercial and multi-home developments. Independent observers are suggesting that the worst is now past for this lender, but nonetheless the move caught the market well and truly by surprise and the stock price dropped by 46% intraday, before closing with losses of 38%.
KBW Regional Banking Index and inverted gold price
Source: Bloomberg, StoneX
Meanwhile the contagion has spread across the Pacific, with Japanese Bank Aozora reporting that it expects to post a loss of $191M for this fiscal year; the previous forecast had been for a profit of $164M. The reversal comes from a hefty increase in loan-loss provisions against U.S. commercial real estate (CRE) and will be the first loss that the bank has posted since fiscal 2009, in the midst of the Global Financial Crisis and the bank has said that it expects the US CRE to take another "year or two" to stabilise.
Gold has not responded as both of these banks are taking pre-emptive action rather than going under, but this is a shot across the bows, nonetheless.
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