New York Community Bancorp (NYCB) experienced another day of significant losses as a wave of Wall Street downgrades hit the company, while credit-rating agency Moody's Investors Service put the lender under review for a potential rating cut. On Thursday, NYCB's shares closed at their lowest level since 2000, plummeting 11% and further deepening the 38% drop from the previous day.

The negative market sentiment also affected regional bank peers, resulting in a two-day decline of 8% in a closely watched index, marking the sharpest drop since the financial markets' turmoil in March. The catalyst for this downward spiral came on Wednesday when NYCB shocked investors by reducing its dividend, reporting a quarterly loss, and bolstering loan-loss provisions. These results amplified concerns over the banks' vulnerability to the commercial real estate sector. However, NYCB's challenges were compounded by the need to prepare for stricter regulation following its acquisition of a portion of collapsed Signature Bank last year, pushing its assets into a new regulatory category.

RBC Capital Markets analyst Jon Arfstrom noted that "the growing pains from being a larger bank will weigh on earnings in the near-to-medium term, and we believe management will need to outperform on credit to regain investor confidence."

NYCB responded to the market turmoil with an emailed statement, saying, "We believe as the market continues to appreciate the value-enhancing actions NYCB has taken, the share price will recover."

Several prominent firms, including Compass Point Research, Jefferies, and RBC Capital Markets, downgraded their recommendations on NYCB to hold-equivalent ratings since the market closed on Wednesday. These downgrades follow prior cuts by Raymond James and CFRA earlier in the day.

Despite the stock slump, NYCB briefly received a boost in post-market trading on Wednesday after providing additional guidance on its expectations for net interest income for 2024, projected at $2.8 billion to $2.9 billion. The absence of this metric in its earnings report initially sparked concerns that NYCB could have further negative surprises in store.

The persistent sell-off of NYCB shares has wiped out more than $3 billion in market capitalization, as short-sellers betting against the company gained approximately $100 million in mark-to-market profits on Wednesday alone, according to data from Ihor Dusaniwsky of S3 Partners.

While some analysts and investors view the regional bank stocks' decline as an opportunity, others remain cautious. JPMorgan Chase & Co. analyst Steven Alexopoulos maintained an overweight rating on NYCB, stating that the issues were specific to the firm and that the record slide was a "dramatic overreaction." Baird's David George suggested that investors capitalize on the recent weakness in the sector and recommended Comerica Inc., KeyCorp, and Truist Financial Corp in a note.

Valley National Bancorp, Western Alliance Bancorp, Zions Bancorp, and BankUnited Inc. were among the regional banks that also experienced declines of 5% or more on Thursday. The volatility in regional bank stocks drew comparisons to the turbulent swings witnessed in March and May, triggered by the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank.

Although the unexpected interest-rate challenges that led to Silicon Valley Bank's failure in March caught the market off-guard, concerns about the exposure of regional banks to commercial real estate have been prevalent since the onset of the pandemic. The sector's underperformance relative to the broader market throughout last year can be attributed, in part, to apprehensions regarding weaker credit.

The surprise results from NYCB came in stark contrast to the reports from dozens of other regional lenders and major US banks in recent weeks. Analyst Herman Chan of Bloomberg Intelligence noted that "everybody else that reported before them was pretty much sanguine about 2024 credit quality, saying that losses would increase but it would be more about normalization than deterioration."

As NYCB and other lenders continue to face ongoing declines, it is evident that the market remains hesitant to move past the recent setbacks.