SDI Productions
In early February, I believe the issues that hurt us New York Community Bank (New York Stock Exchange: NYCB) It appears to be largely an isolated concern. At the time, shares were retesting lows not seen since the regional banking crisis in 2023.This is as investors and management It itself was clearly unprepared for the need to build additional capital as a result of tighter regulations.
This surprise and its nature did not give much confidence. In addition to the now apparent discovery of significant deficiencies in internal controls, greater uncertainty has grown and it is clear that the situation remains very uncertain as investors remain in the dark about the flow of deposits since the situation began.
The only positive for investors is that a new management team is in place, as they actually bought the stock at current levels, but no Updates on margin or deposit basis, it’s hard to be optimistic about stocks here.
Quick review of events
With a rich history dating back to 1859, NY Community Bancorp has deep roots in New York City and Michigan and has been a publicly traded stock since 1993. Shares peaked at $30 in the 2000s before falling to the $10 mark during the 2008/2009 recession, with the company’s stock subsequently sinking to around $10 to $20 per share.
Before turmoil in the regional banking industry in early 2023, the company acquired Michigan-based Flagstar Bank in late 2022, a deal that increased the balance sheet from $63 billion to $90 billion. The merger also created the eighth-largest mortgage originator.
Share prices fell along with the rest of the market and banking sector on concerns about deposit migration and net interest margin compression. But that didn’t stop the bank from acquiring $38 billion in assets from liquidated Signature Bank last March, a deal that largely involved acquiring deposits and cash holdings and a relatively limited set of loan accounts.
The deal means assets have crossed the $100 billion mark, to be more precise, $124 billion, although this figure has declined during the (ongoing) deposit migration process this year.
a big warning
In early 2024, the bank released its 2023 performance report, which issued a major warning. The bank’s announcement to become a bank with more than $100 billion in assets subjects it to more stringent regulations and stress tests, and requires it to maintain more provisions and liquidity.
In response to these capital challenges, the bank cut its quarterly dividend by 70% to $0.05 per share, while also paying higher FDIC assessments as net interest income came under pressure. To make matters worse, the company significantly increased its loan provisions for credit losses, adding more than $500 million in reserves to bring those ratios in line with peers.
Additionally, after two large deals completed in the past year or so, the internals are a bit difficult to decipher. While this all makes sense in and of itself, it does feel like management isn’t overseeing the full impact of all its M&A moves, which comes on top of the long-term underperformance that banks and stocks have already seen.
All of this seems very strange, as the company expects net profit margins to come under greater pressure in 2024, and although the stock price has fallen significantly, the fluidity and uncertainty of the situation prevent it from stepping in.
another downfall
$4 Stocks and Changes in February Stocks hit new lows in early March, falling to $3.50 a share as banks provided another update that spooked investors.
Sandro DiNello, Flagstar’s former chief executive and majority shareholder since the chaos began in early February, has been named executive chairman.Unfortunately, he and his team It has been identified The company announced a massive $2.4 billion goodwill impairment provision and subsequently appointed new senior executives. Oddly enough, this dates back to 2008, which raises some real questions.
On the positive side, credit loss provisions appear to be sufficient and do not need to be changed, but from an investor’s perspective, a statement of material weakness is not good news. Furthermore, following the sharp share price decline in February, the new management has been executing some internal acquisitions in recent weeks, which is a reassuring sign, but alone is not enough to share this optimistic stance, although it could reasonably be argued , the management changes are for the better. here.
The real thing to watch is what the business is going to look like from a profitability perspective this year, but certainly short-term deposit flows as well, because all the bad news could have a real impact on deposits and potentially accelerate deposit migration. Additionally, underlying uncertainty remains over the health of the loan book, with the value of commercial and housing-related real estate being questioned by market participants.
Amidst all this, the latest news is certainly not optimistic, but it is reassuring to see new management taking on the challenge and communicating openly. That said, deposit migration and profitability pressures are real, the extent of which is highly uncertain and may only be seen when first-quarter results are released. Until then, this remains highly speculative, although the largely unique nature of the current predicament offers some chance when management is able to turn things around.
I’m not too keen on investment banking and I don’t feel the need to be a hero and get involved here, given the highly binary and uncertain situation, which remains highly volatile and uncertain.
