Regional-Bank Shares Slide on Delayed Rate Cut

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The decline in U.S. regional-bank shares continued on Monday following recent comments from Federal Reserve Chair Jerome Powell. Powell stated that the central bank plans to postpone interest rate cuts until later this year.

According to FactSet data, the SPDR Regional Banking ETF (KRE) was down 1.6% in recent trading, adding to a 7.2% drop from the previous week. This decline marks the largest weekly drop for the ETF since the week ending June 23 of last year.

New York Community Bancorp Inc. (NYCB, -7.20%) was hit the hardest among the ETF’s holdings on Monday. It initiated the recent wave of weakness in regional-bank shares after reporting an unexpected quarterly loss, cutting its dividend, and increasing its loan-loss provisions to $552 million. This surprising news shocked analysts and revived concerns about the sector’s exposure to struggling commercial-real-estate loans. As a result, NYCB shares plummeted by 37% on Wednesday, their largest daily drop ever, while shares of KRE saw double-digit declines between Wednesday and Thursday — the ETF’s largest two-day drop since the aftermath of Silicon Valley Bank’s collapse in March 2023.

It is worth noting that New York Community Bancorp had acquired some of the assets belonging to Signature Bank, one of three U.S. banks that failed in quick succession last March. The failure of these banks led to the Federal Reserve’s decision to extend a new credit facility to the banking system.

Analyst Peter Winter from D.A. Davidson, who covers regional banks, attributed Monday’s weakness to Powell’s remarks during an interview with “60 Minutes” that aired on Sunday. Powell reiterated that the Fed is likely to wait before implementing any rate cuts, further dampening market expectations for a cut at the Fed’s upcoming March meeting.

Winter explained that lower rates would provide relief to borrowers who may struggle to repay their loans at the current rates. He believes that the entire sector could benefit from a decrease in rates from a credit perspective.

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