Troubled lender NYCB seeks to reassure investors after stock slide, Moody's credit downgrade
New York Community Bancorp (NYCB) is attempting to reassure investors about its deposits, liquidity, and governance following a weeklong plunge in the company’s stock and a decision by Moody’s to cut the bank’s credit rating to junk.
The $116 billion commercial real estate lender put out a press release just before midnight ET on Tuesday following the Moody’s downgrade showing total deposits were up since the end of 2023 and that its total liquidity of $37.3 billion exceeded its level of uninsured deposits.
In a separate announcement Wednesday morning, the company said it had appointed Alessandro DiNello as executive chairman. DiNello was previously the CEO of Flagstar Bank, which NYCB purchased at the end of 2022 and a bank examiner earlier in his career.
"We have seen virtually no deposit outflow from our branches," DiNello said on a conference call Wednesday.
The new executive chairman assured analysts that "we'll be laser-focused" on reducing the bank's commercial real estate concentration and that NYCB's No. 1 priority is "building confidence" with Wall Street about its deposits and liquidity.
The comments did halt a free fall in the company's stock that had been deepening with each day. It rose 7% Wednesday.
It remains to be seen whether the company's assurances will be enough to end a crisis roiling one of the country's top 30 lenders. Its stock has still fallen by 57% since it surprised Wall Street on Jan. 31 by slashing its dividend and reporting a net quarterly loss of $252 million.
The turmoil at NYCB is also dragging down the value of other regional bank stocks and stoking new concerns about the industry's vulnerability to office buildings and apartment complexes that are suddenly worth less due to high interest rates and shifting work patterns.
New analyst downgrades and revelations about executive departures have added momentum to NYCB’s slide this week.
One highlighted by Moody's was the departure in recent months of two key New York Community Bank executives — the bank's chief risk officer and its chief audit officer. Bloomberg reported those departures on Monday.
CEO Thomas Cangemi acknowledged those departures in the bank's Tuesday night statement, saying, "We have been engaged in an orderly process of bringing in a new chief risk officer and chief audit executive with large bank experience, and we currently have qualified personnel filling those positions on an interim basis."
Steven Alexopoulos, a midsized bank analyst for JPMorgan, became the latest on Wall Street to downgrade NYCB, giving it a Neutral recommendation Wednesday morning.
"It appears the company will likely remain inward focused at least over the intermediate term. As a result, we see the prudent strategy for investors for now to be moving to the sidelines," Alexopoulos noted.
New York Community Bancorp's troubles can be traced back to how it responded to a crisis that roiled the regional banking world in 2023 and took down three sizable regional banks: Silicon Valley Bank, Signature Bank, and First Republic.
NYCB played the role of rescuer during that crisis by picking up parts of the failed Signature Bank.
But that decision to absorb billions in loans pushed the bank above an important asset threshold of $100 billion, subjecting the company to higher regulatory standards. Bigger banks in the US are required to set aside more capital to give them sizable buffers against future losses.
That, the company said, is the reason it cut its dividend and boosted the money it set aside for loan losses in the fourth quarter. Those loan loss provisions were $552 million, well above analyst estimates, and are designed to prepare the bank for more weakness in its commercial real estate portfolio. Its deposits also dropped by 2% between the third and fourth quarters.
"We took decisive actions to fortify our balance sheet and strengthen our risk management processes during the fourth quarter," Cangemi said in his statement Tuesday night. "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."
Bloomberg reported Monday that officials from the Office of the Comptroller of the Currency applied pressure on New York Community Bancorp to set aside more money and slash its dividend in case commercial real estate loans end up souring.
The Hicksville, N.Y.-based bank has a high level of exposure to rent-controlled apartment complexes in New York City. Those buildings account for 22% of its loans.
DiNello, a former bank examiner for the Federal Home Loan Bank of Indianapolis, was asked by analysts Wednesday whether regulators had forced the bank's hand.
"What we did was what we needed to do," he said. "All right, we did the proper review of our loan portfolio. We made some changes in the way we risk-weighted our loan portfolio and came to the conclusion that we needed to take action."
When asked if NYCB was considering shrinking its balance sheet to under $100 billion in assets, DiNello said that while management has considered the option, "we certainly haven't haven't made any decision to do that."
Moody's on Tuesday cited "multi-faceted financial, risk-management and governance challenges" the bank faces as its reasoning for the downgrade from investment grade to high-yield, or “junk” status.
Its commercial real estate exposure could create "potential confidence sensitivity." It also cited a "relatively high dependence" on wholesale funding and a smaller pool of liquid assets when compared to peers.
Moody’s also said NYCB "could face significant funding and liquidity pressure if there is a loss of depositor confidence."
Panic among depositors helped contribute to the undoing of the three big regional banks that failed last year — especially deposits that were above the limits insured by the Federal Deposit Insurance Corporation.
NYCB on Tuesday highlighted what it called its "deposit stability," noting that total deposits of $83 billion were up from $81.4 billion at the end of 2023. Its uninsured deposits were $22.9 billion, or roughly 27% of the total.
It also highlighted its "ample liquidity," pointing out that its total liquidity of $37.3 billion exceeded its level of uninsured deposits.
DiNello told analysts Wednesday, "I don't know what the future is going to hold, but we are in a position, given the earnings power of this organization, to outrun any provision need that we may have."
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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