The storm-tossed
New York Community Bancorp
put its board chair in charge after credit downgrades and a steep selloff in its stock.
Early Wednesday, NYCB said Alessandro DiNello went from nonexecutive chairman to executive chairman, giving him day-to-day involvement at the lender, where shareholders had lost confidence in the leadership of chief executive Thomas Cangemi. Before NYCB’s 2023 merger with Michigan-based Flagstar Bank, DiNello had cleaned up that Midwest lender.
By mid-afternoon, the bank’s maneuvers seemed to be working. The stock was up 7%, to $4.50, after having dropped as much as 15% in the morning.
On a morning call, DiNello vowed to strengthen “every aspect of the company” to build a “fortress balance sheet”. To boost NYCB’s regulatory capital, he said he would be willing to shrink its balance sheet by selling loans.
He seemed to quickly make good on his word. Bloomberg reported later in the morning that NYCB was negotiating to sell billions of dollars in loans. Those included loans secured by vehicles like RVs, and special derivatives that would transfer the risk of property mortgages. MartketWatch reported that mortgages on some Manhattan properties were out for bid.
Those moves were driven by a nearly 60% drop in NYCB stock in the week after it slashed its dividend and took a half-billion dollar reserve against losses on its big book of commercial real estate loans.
Before the 70% dividend cut, NYCB had offered one of the industry’s more generous payouts. That makes it likely that income-oriented investors and funds were among those stampeding out of the stock.
Some of Wednesday’s initial selling likely was in reaction to recent downgrades. Late Tuesday, Moody’s cut its rating on NYCB debt to junk. Last week, Fitch downgraded the debt from BBB to BBB-. Both ratings companies say they’re on watch for further downgrades, but they still rate the bank’s deposit safety as investment grade.
The bank said in a securities filing that it doesn’t expect the Moody’s downgrade to have “a material impact” on contractual arrangements. It didn’t respond to queries from Barron’s.
BofA Securities also yanked its endorsement of the stock Wednesday, and took its rating from Buy to Neutral. Analyst Ebrahim Poonawala said the bank had ample liquidity, but worried that headlines might scare away some deposits, which the bank would have to replace at higher cost. That could pinch earnings.
Around midnight Tuesday, NYCB released some updated numbers on its balance sheet, as of Monday. Deposits were up 2% from December, to $83 billion. The proportion of insured deposits rose from 67% to 72% over the same stretch, with over 90% of the top 20 depositors fully insured or collateralized. It has $37 billion in liquidity.
Sticking with a Buy rating amid the panic is
Piper Sandler’s
Mark Fitzgibbon. Deposits have grown since December, he noted Wednesday, and the bank’s $37 billion in liquidity is over 160% of uninsured deposits. It will show profits this year and the next.
And yet, the bank’s stock has fallen below 40% of its tangible book value, and less than seven times Fitzgibbon’s forecast for 2024 earnings. “[W]e think the noise is receding,” he wrote, “And we have increased confidence in our bullish view on the stock given the updated liquidity and deposit flow information.”
In the SEC filing overnight Tuesday, NYCB confirmed media reports that said its chief risk officer and its audit chief had left. It said it is in an orderly process of bringing in a new chief risk officer and chief audit officer, with qualified people filling those roles on an interim basis.
The bank’s problems stem from its large book of loans on commercial real estate, where values have suffered over the past two years from higher interest rates. The issues reminded investors of the regional bank turmoil last year, when
First Republic Bank,
Silicon Valley Bank, and
Signature Bank
collapsed.
Some of NYCB’s loan reserve actions result from loans it acquired from Signature Bank. That deal, along with the Flagstar merger, pushed NYCB over $100 billion in assets—a regulatory threshold that makes it subject to more stringent regulatory demands for liquidity and capital.
Regulators clearly pressed NYCB to make its surprise moves to cut dividends and set aside reserves. Treasury Secretary Janet Yellen told a House committee hearing Tuesday that commercial property loans were a concern for regulators.
But regulators engineered NYCB’s purchase of Signature assets last year, so it’s hard to imagine they would drive NYCB to ruin with further prudential demands. Piper Sandler’s Fitzgibbon thinks NYCB’s half-billion reserve provision looks like an adequate catch-up to other regional banks.
What the New York lender’s travail means for other banks seemed a question that troubled the market. Although the
SPDR S&P Regional Bank ETF
was more or less unchanged Wednesday afternoon, it has lost ground since NYCB’s news shock.
NYCB isn’t a canary in the coal mine for other banks, wrote UBS analyst Brody Preston Wednesday. He thinks NYCB’s loss provisioning reflected tougher oversight, not a sudden worsening in commercial real estate.
“There is a difference between what auditors say on supportable reserves and what the regulators say needs to be done,” wrote Preston.
He maintained his Neutral rating on NYCB.
Write to Brian Swint at [email protected] and Bill Alpert at [email protected]
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