New York Community Bancorp (NYCB) stock had its worst one-day drop since the regional bank shakeup in early 2023. NYCB posted an unexpected loss, slashed its dividend, and cited higher regulatory costs.

Yahoo Finance Banking Reporter David Hollerith breaks down this story and how investors are responding to this plunge.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Eyek Ntekim

Video Transcript

JULIE HYMAN: Absolute plunge in shares of New York Community Bancorp today. It's putting pressure on other regional banking stocks as well. Here with the details, Yahoo Finance's David Hollerith. A little bit of a spring 2023 flashback here, David. What's going on?

DAVID HOLLERITH: Yeah, Julie, so fourth quarter for NYCB, New York Community Bank, was a time to reset expectations. And obviously, as you pointed out, the stock has plunged. The daily drop is the worst in the company's history. It's also the worst we've seen since last spring.

So what exactly spooked investors? NYCB reported a net loss of $252 million for the fourth quarter. It also slashed its dividend. And the bank did this because it's grown so quickly in recent years that it has to set aside more money for regulatory requirements. It also has higher potential credit losses expected over the next year.

In particular, it pointed to two office loans in different parts of New York state. So for context here, NYCB has, essentially, doubled in size since 2022. It most notably bought Signature Bank's assets, some of its loans and deposits, not its CRE loans, in the spring last year from the FDIC after Signature failed.

Also in 2022, it bought Flagstar Bank. So it's grown a lot. And that has put it into a higher bracket of regulatory requirements. Now, the critical point here is that the bank is trying to account for all of that, and investors are extremely displeased.

And we haven't seen any kind of reaction like this since spring. And surprises, I think, we are finding are still very bad for the banking sector. I will point out, though, that other banks have had net losses for the quarter. Those have been bigger banks. And, largely, investors haven't cared. So the new capital requirements that NYCB is sort of stashing away more money for are due, in part, to the Basel requirements.