If you’re an investor who follows the stock market, you may have heard about the recent plunge in Valley National Bancorp’s (Nasdaq: VLM) stock price. This bank, which operates in several states in the USA, including New Jersey, New York, Florida, and Alabama, saw its stock drop by about 20% on Monday. This marks a decline of about a third of its value since the beginning of the year. So, what caused this drop, and how does it affect investors in Tel Aviv, particularly those who invest in Bank Leumi (TLV: LUMI)?

Firstly, it is worth noting that Bank Leumi is the largest shareholder in Valley National. This is because last year, the Israeli bank merged its US operations with Valley National. As a result of the merger, Bank Leumi owns 14.2% of American Bank.

Valley National Bancorp (Photo: spklewis)

However, the current decline in Valley National’s stock price has led to a decline in the value of Leumi’s holdings by over NIS 1.5 billion. Yes, it is a paper loss at the moment, but still. In the meantime, the value of the entire Valley National Bank after the sharp drop in its stock is now around $3.7 billion.

Clearly, this is not a trivial matter, as any further deterioration in the share price of Valley National will bode negatively for Leumi. As part of the merger deal between Bank Leumi and Valley National, Leumi appointed two directors, an observer to the board of directors, and the CEO of Leumi USA, Avner Mendelsohn, now serves as the vice-chairman of the board of directors. Both banks signed a cooperation agreement in conjunction with the merger agreement regarding Leumi’s participation in the credit that the American Bank will provide and the provision of banking services to its clients.

Leumi Bank branch (Photo: Chaim Hornstein)

So, what caused this latest decline in Valley National’s share price? One of the main reasons is a downgrade of the stock recommendation from investment company Raymond James in the USA. Steve Moss, the company’s analyst, noted that the recommendation was lowered due to the bank’s slightly higher sensitivity to the interest it grants on deposits, compared to its competitors. 

Prior to that, the markets had anticipated that Valley National would acquire the failed First Republic Bank. As a result, Valley National’s stock increased by about 13%. On Monday, however, Valley National’s stock plummeted as it became apparent that JP Morgan would save the First Republic.

Despite the recent drop in Valley National’s stock price, the bank’s financials remain relatively stable, at least according to the most recent numbers. In 2022, the bank reported a net profit of $569 million, marking a 20% increase from the previous year. The first quarter of this year also showed positive results, with a net profit of $146.6. Additionally, with a credit rating ranging from BBB+ to A- and a total balance sheet estimated at $64 billion, Valley National’s stability is of great importance, particularly in light of the ongoing global banking crisis. Therefore, it is reasonable to anticipate that the bank will be able to withstand any potential volatility in the near future.

However, when it comes to the markets, things are rarely straightforward. The recent turmoil in the banking industry, with four banks acquired in an attempt to stabilize the sector, suggests that nothing can be taken for granted. As a result, it remains to be seen how both banks will fare in the coming months, and in the meantime, investors should continue to monitor the situation closely.