New York Community Bancorp Stock Tumbles 54% — Is A Regional Banking Storm Brewing?

Shares of New York Community Bancorp Inc. NYCB have plummeted by over 54% so far this year as the bank struggles to manage its assets during the latest wave of the regional banking crisis. The bank reported a total loss of $252 million in the fourth quarter of 2023 and slashed dividends by roughly 71% from the previous quarter to $0.05 per share.  

Signature Bank Acquisition 

In the aftermath of last spring’s banking crisis, New York Community Bank (NYCB) seized the opportunity to acquire a significant portion of Signature Bank's business, comprising $13 billion worth of loans (primarily commercial and industrial) and $34 billion worth of deposits. 

NYCB executives expressed confidence that the Signature acquisition had enhanced the bank by introducing “low-cost deposits” and a lucrative business catering to medium-sized companies and affluent families. 

NYCB's total assets grew to over $100 billion post the acquisition, making it one of the major regional players, with more than 420 branches across the country. 

Nonetheless, the bank disclosed in its latest earnings call that its enlarged size following the acquisition of Signature Bank has exacerbated its challenges. The value of its commercial real estate loans plummeted sharply, accounting for the majority of its quarterly losses. 

This can be attributed to the decreasing demand for office occupancy post-pandemic, as well as the increasing cost of loans amid sky-high interest rates. 

Moody's downgraded New York Community Bancorp to Ba2 from Baa3 following its earnings release because of "multifaceted financial, risk management and governance challenges."

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Recovery Measures

The disappointing earnings release caused investors to panic, leading to a steep selloff of NYCB shares. However, the bank released its current liquidity and deposit information in a press release on Feb. 6, stating that the company's total liquidity of $37.3 billion exceeds its total uninsured deposits of $22.9 billion.

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“Our actions are an investment in enhancing a risk-management framework commensurate with the size and complexity of our bank and providing a solid foundation going forward. Despite the Moody’s ratings downgrade, our deposit ratings from Moody’s, Fitch and [Morningstar] DBRS remain investment grade," said Thomas R. Cangemi, president and CEO of New York Community Bancorp. 

The effectiveness of NYCB’s recent initiatives remains uncertain. A pivotal move in this turnaround effort was the appointment of Alessandro DiNello as the new executive chairman. DiNello, who previously oversaw Flagstar Bank before its acquisition by NYCB in 2022, said during the call that he and Cangemi are committed to guiding the company back to financial stability.

"This company has a strong foundation, strong liquidity and a strong deposit base, which gives me confidence for our path forward," DiNello said during the latest earnings call. "If we must shrink, then we will shrink. If we must sell nonstrategic assets, then we'll do that."

While the company's quarterly earnings panicked investors, the subsequent financial update has been appeasing shareholders. Billionaire hedge fund manager George Soros, founder of Soros Fund Management, increased his stake in the distressed bank to 1.48 million shares. 

In contrast to major banking institutions like JPMorgan Chase & Co. and Bank of America Corp., which boast diverse business lines, smaller banks like New York Community Bancorp operate within a limited scope, making them susceptible to the impact of a simultaneous downturn in specific loan sectors. 

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