NYCB Dragging US Regionals Down: CLO Market, Not European Credit Contagion Remains Our Fear

US regional bank index (KRX Index} getting hit on this NYCB news (unsurprisingly); our concern is more in the CLO class rather than anything systemic across mainstream credit and the contagion fear into Europe (aside from a select few over-exposed real estate lenders) appears limited.

• The US major banks all have exposures to investment banking, wealth and asset gathering and are relatively underweight US retail, in a sense. So this sectoral move doesn’t obviously translate to the majors with big EUR credit stacks outstanding.
• There are 47 equity index constituents and, of that, 46 of them are trading within roughly 250bp of each other (which is really tight in equity world). No prizes for the outlier. This does, however, underline our point about the idiosyncracy of NYCB’s acquisition spree and control/planning failures.
• US commercial real estate is obviously under pressure but when the CFO of JPM, Jeremy Barnum, is willing to go on the record (as he did on 27-Feb) saying he doesn’t have “large concerns” over NY multi-family real estate and doesn’t expect US office to get better any time soon, it gives a sense the sector bellwether has done the work and doesn’t see a systemic issue.
• We would hate to be long private capital into this sector at the moment, so would keep a close eye on the CLO industry for initial stress indicators.