I don't know whether the borrowed funds issue is the cause of today's weakness. However, Joe F has spoken several times about his desire to make an acquisition that will put NYCB over the $50b threshold & be accretive to earnings. He's been quizzed by analysts about the regulatory implications of such an action on NYCB's dividend level (which I'm sure he wants to maintain). He contended that there shouldn't be an impact (not the same as there won't be).
In my view, the fact that there hasn't been an acquisition recently suggests to Wall St that there may be a regulatory issue at work. Otherwise, the benefits of replacing borrowed funds with deposits would have prompted a buy-out by now. Perhaps that's contributing to the weakness in the stock, despite its good earnings this quarter. (Personally, I think AF would be a great fit; but it may not be for sale ).
This earnings report highlights the huge drag that the cost of borrowed funds is having on NYCB's NIM & EPS. They are paying 2.66% for $15 billion in borrowed funds, while paying less than 0.4% on their $22 billion in deposits!
NYCB may reach the $50 billion asset threshold by the end of this year organically (they are at $46.7 billion currently). It surely looks like now is the time for NYCB to acquire a deposit-rich franchise. If they are going to have to adhere to the $50 billion+ rules anyway, they will be far better off getting there through a strategic purchase rather than by simply backing into it.
Today's 11% drubbing had nothing to do with the earnings report which, while mediocre, was not a disaster. In the conference call the CEO (Gary Crosby) announced a "common rails" technology initiative that will cost about $80 million in 2014, and likely additional amounts in 2015/16. The payoff, he said, wouldn't be visible until 2017/18 (!!) when ROA should be in the 1.15%-1.25% range. In the meantime, the ROA, the EPS & the efficiency ratio would all suffer, he said. When asked how investors will be able to guage--before 2017/18-- whether the common rails initiative is having the desired effect, the CEO said that he'd report in quarterly conference calls whether the initiative is on schedule & on plan (with data??).
If Mr. Crosby had a record of having accomplished a technology & earnings turnaround in a banking environment, perhaps I'd have more confidence in his near/mid-term pain for long-term benefit vision. Also, it would help if analysts could point to other banks that have successfully pursued a similarly significant investment in "common rails."
Unfortunately, at this point we only have the CEO's generalized expectations to rely on. And even if he's proven correct with his prediction, he's provided no reason for investors to hold onto FNFG shares for the next 2+ years.
The street lost confidence in FNFG when the details of the HSBC purchase became apparent. The CEO selection didn't help. IMO, it's now on FNFG to demonstrate--through EPS growth--that it has successfully managed its way through its self-inflicted wounds. The street is not giving FNFG a presumption of improvement--as it is with other regionals-- simply based on the rise in interest rates & the likely positive impact on the NIM.
The immediate street reaction to the Crosby appointment has been a harsh negative. It appears that the board made little effort to regain credibility on the street after the HSBC fiasco. The board either failed to, or made no attempt to, hire a CEO with strong banking credentials.
I don't have any insights into Crosby's leadership ability, but that's really the point. The market would have preferred to see an appointment of an individual with a strong track record. Crosby may wind up being an ok selection, but the lack of a "home run" appointment says something about the board & its vision. Did the board not recognize that their choice was going to be perceived as either a home run or a strike out?