Market 02/01: Risk of banking crisis returning

Risk of banking crisis returning after NY Community Bancorp ER

Yesterday, New York Community Bancorp unexpectedly reported net loss of -252 million USD in Q4, announced dividend cut 70%.

Of which, provision losses reached 552 million USD (while estimates were only >50 million), due to commercial real estate loans.

During the 2023 banking crisis, NYCB acquired the majority of Signature Bank's assets.

NYCB stock plunged -45% over two consecutive days.

NYCB faces risk of Moody's downgrading credit rating to “junk” (highest risk credit rating level).

US Regional Banking ETF also down -9% until this morning (02/01).

Although fewer banks collapsed than in the 2008 crisis phase, the value of banks that collapsed in last year's crisis reached >500,000 USD.

While large banks exploited BTFP for arbitrage, small banks really needed BTFP: they would have gone bankrupt early without BTFP.
However, the Fed's BTFP program is expected to end on 03/11 → warning of a chain reaction for the upcoming crisis.
Additionally, Deutsche Bank has just planned to cut 3,500 jobs despite positive outlook for next year.

Trouble comes from commercial real estate

Viet Hustler predicted last year that Commercial real estate could ignite a crisis for Regional banks.

Related articles: What else awaits the economy after these crises…

Over the past 4 years, deposits at small banks have grown strongly compared to large banks.

However, among them, loans at small banks have up to 28.7% as commercial real estate CRE, compared to only 6.5% at larger banks.

Office delinquent debt ratio increased +48bps this month to 6.3%.

The CRE crisis is worse than imagined.

Expected CRE losses will limit lending capacity of banks in the future.

Xerox building in Washington DC just sold for 25 million USD, compared to 145 million USD in 2011 ~ 83% loss.

Initial jobless claims surge after series of layoff announcements

Initial jobless claims last week increased +224,000 (forecast only +212,000) - highest level since November (higher than expected).

→ Labor market is gradually loosening

Continued claims also rose to nearly 1.9 million, the highest since December 2021.

Layoff announcements from a series of large companies (like UPS recently) could be a sign that the unemployment rate will rise in the coming months: read more on December labor report.

Market reacts positively after unemployment claims report:

10-year Treasury yield falls below 3.9% for the first time this year:

Q4 labor productivity boosts growth as inflation cools

Hourly nonfarm productivity rose +3.2% YoY, (Q3 also revised up to 4.9% ).
Unit labor costs - the largest cost for many businesses - rose +0.5% YoY, following Q3 revised down to 1.1%.
Unit labor costs rose +2.3% YoY.

→ Q4 labor productivity marks a year of improved performance, helping to drive economic growth amid cooling inflation.

US Manufacturing PMI recovers in January

S&P Global manufacturing PMI surges to 50.7 in January (vs 47.9 in December) - highest since September 2022.
ISM manufacturing PMI also rises to 49.1 in January (> expected: 47.2).

New orders and employment both rose quite positively.

A concern is production costs rose sharply due to recent shipping disruptions constraining supply.

Earnings reports: Peloton and Qualcomm

Peloton ER: Stock falls after revenue forecast below estimates

Peloton, the fitness equipment maker, warns it will take many more months to achieve growth in revenue or profit.

Loss per share: 54 cents vs 53 cents expected.
Revenue: $743.6 million, down from $792.7 million a year ago.

Peloton also forecasts sales will decline and losses will be wider than expected in the current quarter.

Peloton shares drop more than 20% in morning trading.

Qualcomm: Positive Q1 earnings results

EPS: 2.75 USD (> estimate 2.37 USD)
Revenue: 9.922 billion USD (> estimate 9.517 billion USD)

Some other assessments on Qualcomm:

Handset products grew strongly, meeting the company's targets set at the end of the previous fiscal year.

Dependence on Apple continues to decline, but cooperation with Samsung has been strengthened.

However, Apple still cannot abandon Qualcomm modems on its iPhones, and this business line may last longer than expected.

Some other news:

Federal judge dismisses Disney's lawsuit against DeSantis, ruling Disney lacks standing to sue.
Tesla holds shareholder vote to move the company to Texas.
- According to a survey on X, 87% support the relocation decision.

Chinese chipmaker CXMT prepares to produce its first high bandwidth memory (high bandwidth memory - HBM), a key component in AI, to reduce dependence on foreign suppliers like SK Hynix, Samsung, and Micron.