During last spring’s banking crisis, when a competing lender went bankrupt, New York Community Bank jumped in and acquired a large chunk of its business. Now he is paying a high price for that decision.
The problem stems largely from a weakening commercial real estate market that prompted NYCB, which operates more than 400 branches under brands such as Flagstar Bank, to admit mounting losses. In a symmetry with last year’s crisis, the bank said its new size after the acquisition of Signature Bank had accelerated its problems by forcing it to keep more cash on hand, limiting its profitability and leading it to consider selling troubled assets. ahead of schedule. maybe I would have preferred.
Over the past week, fears that such pressure could be too much for the bank bear came to lightand NYCB stock lost nearly two-thirds of its value as investors sold en masse after a lousy earnings report. After the bank was quick to project stability, including by releasing a new set of financial disclosures Tuesday night that one analyst called an “overnight news dump,” shares rose 7 percent on Wednesday.
Whether their efforts will be sustained is an open question. NYCB executives, who just a week ago had remained silent about the bank’s finances, opened the books Wednesday and laid out turnaround plans in a public conference call.
The bank named a new CEO, Alessandro DiNello, who ran Flagstar before NYCB bought it in 2022. On the call, DiNello said he and NYCB CEO Thomas R. Cangemi would lead the company to turn around your financial health.
The 164-year-old institution, founded in Queens, boasts on its website that “the opening of the borough’s first local bank was met with euphoria and relief.” Now headquartered in Long Island, it also operates branches throughout the Midwest and elsewhere.
“This company has a strong foundation, strong liquidity and a strong deposit base, which gives me confidence in our path forward,” DiNello said during Wednesday’s call.
He said NYCB would consider raising more money or selling assets, adding that the bank would divert any pre-tax income to increase its savings.
“If we have to downsize, then we will downsize,” DiNello said. “If we must sell non-strategic assets, then we will do so.”
However, as UBS analysts put it, “some data is still missing,” including details on how the bank plans to fund its long-term debts.
Data released by the bank showed its deposits remained more or less stable through Tuesday, although it is unclear whether that was due to additional money from customers or money transferred from other lenders. Executives also did not commit to how often they would provide further updates on deposit levels.
Bank leaders continued to show some irritation, refusing, for example, to say when they began considering DiNello’s promotion. “I don’t see why that matters,” he said on the call.
The stock had a wild run on Wednesday, temporarily falling by a double-digit percentage and repeatedly triggering the NYSE’s automatic circuit breakers meant to stop a free fall before recovering. Overall, regional bank stocks closed slightly lower on Wednesday.
The problems at NYCB show the relatively shaky ground many regional and community banks occupy. Unlike JPMorgan Chase, Bank of America and other banking giants, which have multiple lines of business, small and midsize lenders operate in only a few domains and can accumulate loans that deteriorate all at once. That exposes them to a level of volatility that the country’s largest banks rarely experience.
Some of NYCB’s problems began last spring when Silicon Valley bank implodedwhich unleashed a mini contagion among regional lenders that led to the signature closing and ended with him sale of First Republic Bank to JPMorgan. In March, the Federal Deposit Insurance Corporation, a banking regulator, effectively seized Signature and auctioned off different parts of its business.
Through its Flagstar subsidiary, NYCB made the most aggressive offer – one that would allow the government to bear the smallest short-term loss – and was selected among others, including one from a much larger lender. The bank bought about $13 billion of what were primarily commercial and industrial loans on Signature’s books, as well as $34 billion in deposits.
As recently as Jan. 31, NYCB executives said the acquisition of Signature had strengthened the bank by adding “low-cost deposits” and a profitable business that provides banking services to midsize businesses and wealthy families. But the acquisition also put the bank into a regulatory category — those with $100 billion or more in assets — that forced it to grow its reserves more quickly than it had needed as a smaller lender.
Swallowing Signature’s assets made sense for NYCB, since the two banks operated in many of the same markets. But the Long Island bank was also continuing to integrate new and old assets following its acquisition of Flagstar, one of the nation’s largest residential mortgage servicers.
At the same time, the housing market was beginning to show cracks resulting from the Federal Reserve’s multiple rate hikes and the post-pandemic drop in office occupancy. That put at risk much of Signature’s portfolio, which contains older loans made in a different economic environment.
Some of those loans may need to be refinanced at higher interest rates than before, and others may simply need to be written off as losses. NYCB cut its dividend last week to preserve cash.
“Should they have known what was coming? Yes,” said Todd Baker, a banking and finance expert and senior fellow at Columbia University’s Richman Center. “It’s clear to me that they really didn’t know how quickly they were going to have to adapt. “The regulators, having been burned once, are collapsing like a ton of bricks.”
Representatives from the FDIC and the Office of the Comptroller of the Currency, another banking regulator, declined to comment. A Federal Reserve representative did not immediately respond to a request for comment.