Regional bank share prices have tumbled since New York Community Bancorp (NYCB) reported surprisingly large losses on real-estate loans. Don’t blame this mini-bank panic only on underwater office buildings. Primary culprits are Albany’s destructive rent-control laws.
NYCB last month reported $552 million in credit losses, including a $185 million charge-off mostly from two office and condo building loans during the fourth quarter. These losses were bigger than investors expected. But what worries investors more is the bank’s $37 billion multi-family housing portfolio, about half of which are comprised of New York rent-regulated units.
The bank flagged that 14% of its $18 billion rent-regulated loan book is at risk of default. Its eventual losses could be bigger as rent-regulated buildings have recently been selling at a 30% to 60% discount from their purchase price. The values of rent-regulated buildings have fallen by some $75 billion, according to one estimate.