Banks based in New York are seeing their stocks tumble as a new note from Wedbush has highlighted that New York Democrats "pose a risk to loan growth and credit", according to Bloomberg.
Newly elected Dems are eyeing rent control laws that are set to expire on June 15. Republicans had previously controlled New York's Senate in the past, allowing them to block Democratic efforts to change the laws. Now that Democrats are in "complete control" of the state government, they have "introduced nine bills on rent regulation that clearly favor the tenants," according to the note.
The windfall for tenants could, in turn, put pressure on the lending business.
Wedbush analyst Peter Winter wrote:
"There's potential risk brewing to the multi-family lending business in New York. The risk comes not from a credit perspective, as these loans are conservatively underwritten, but rather from potentially weaker loan demand and less refi activity. That would hurt prepayment income, which in turn would hurt net interest margin."
Names like New York City Bancorp and other New York-exposed banks were under pressure on the news.
In its note, Wedbush also pointed out the top 5 banks that would have exposure to such legislation: NYCB, Dime Community Bancshares, Signature Bank, Investors Bancorp and Sterling Bancorp. Wedbush also downgraded Signature Bank to neutral from outperform.
Bloomberg also noted that the KBW regional bank index fell as much as 2.7% to its lowest levels since early April. The pressure on the index was led by Signature Bank. The broader KBW bank index fell 2.2%, dragged down not only by NYCB, but also by SVB Financial Group, KeyCorp and Comerica Inc.
It had been previously reported about a week ago that New York property owners and the banks that lend to them were opposing Democratic lawmakers seeking more protections for tenants.
In March, we published an article noting how "Rent Control" actually harms those it seeks to protect.