New York Community Bancorp is risking its survival. The entity has been in the spotlight by investors since last week. After Moody's downgraded its rating to junk bond level, shares were plummeting on the stock market and the bank has decided to react. NYCP has announced that it is giving executive status to the former president of its board, Alessandro DiNello, and has called on analysts and investors this Wednesday to try to reassure them. The entity defends its solvency and ensures that it has not suffered any leakage of deposits. The bank has had a respite in the stock market: it has opened lower and has lost 14%, but then it has turned upward and has closed with a rise of 6.7%. Even so, it falls 57% since Tuesday of last week.
Bank executives have defended that their decision to cut the dividend, which triggered the crisis, was the right one to reinforce capital. The market has been very suspicious for a year and investors run away without asking if they have doubts about an entity. NYCP came out this Wednesday to stop a possible spiral of stock market crashes and deposit leaks like the one that brought down Silicon Valley Bank, Signature Bank and First Republic Bank a year ago.
DiNello served as non-executive chairman of the board after joining the entity following the completion of the acquisition of Flagstar Bank in December 2022. Previously, he was president and CEO of Flagstar Bank since 2013. He now receives executive functions and with his experience has taken center stage to try to calm investors at the conference with analysts this Wednesday.
“The current challenge is not easy. But this company has a solid foundation, strong liquidity and a solid deposit base, which gives me confidence for our path forward,” said DiNello. “We've taken a couple of hard hits in the gut, but we're strong,” he added, noting that the bank is willing to take additional steps to ensure its viability: “If we have to downsize, we will. If we have to sell non-strategic assets, we will do so. We will do whatever it takes,” he assured.
The entity has already been looking for investors to unload a large portfolio of residential mortgages and is also studying the sale of a portfolio of about $1 billion of loans for recreational vehicles and boats, according to people familiar with the matter cited by Bloomberg.
In the conference with analysts, the bank explained that it has total deposits of approximately 83,000 million dollars, and that the figure is higher than that of the end of 2023. Of that figure, 72% are deposits insured by the guarantee fund of deposits or with other guarantees, so the risk of flight is lower. Total uninsured deposits amount to $22.9 billion.
At the same time, the bank indicates that it has a total liquidity of $37.3 billion, higher than uninsured deposits, with a coverage ratio of 163%, with cash on balance of approximately $17 billion and unencumbered securities. for an approximate loanable value of 6.1 billion dollars. Added to this are the lines of credit from the Federal Reserve and the Federal Home Loan Bank of New York for $14.2 billion.
“I want to reiterate the strength of our deposits, the resilience of our deposits and the solid level of liquidity that we have built,” DiNello said. “We will continue to review our loan portfolio and take whatever steps are necessary to build a strong balance sheet. In the fourth quarter we took a big step in the right direction with our provision,” he explained.
“In the fourth quarter we took decisive actions to strengthen our balance sheet and reinforce our risk management processes,” said Thomas R. Cangemi, president and chief executive officer. “Despite Moody's downgrade, our deposit ratings from Moody's, Fitch and DBRS remain investment grade. “Moody's downgrade is not expected to have a relevant impact on our contractual agreements,” he added.
Note reduction
Moody's on Tuesday lowered the rating from Baa3 to Ba2, two steps below investment grade, and also warned that there may be further cuts if conditions deteriorate. A rating like this is a calamity for a financial institution. Moody's noted in its report financial and governance risks, including those related to the bank's risk and audit functions, at a crucial time for the entity.
The entity reported last week that its annual profits had skyrocketed, from 617 million in 2022, to 2,341 million in 2023. However, these results included an accounting item of about 2,200 million dollars of negative goodwill due to the purchase of assets from Signature Bank, an entity that fell into the banking crisis a year ago. Once adjusted for that item and other items, the 2023 profit was $609 million, 4% less than the previous year. However, in the last quarter, the bank recorded losses of $252 million, with a need for provisions that surprised analysts and investors. In addition, it announced that it was cutting the dividend.
Silicon Valley Bank, Signature Bank and First Republic Bank fell last year because of their debt investments, which lost value as interest rates rose. It was a problem that affected many more entities and that is why there was at times a systemic risk. In the case of New York Community Bancorp, the trigger for its entry into losses is the commercial real estate sector, punished by the rise in interest rates, the rise of remote work due to the pandemic and other changes. Many US regional banks have relevant exposure to that segment of the market.
Curiously, NYCB was one of the entities that emerged apparently stronger from the crisis of a year ago. Through its subsidiary Flagstar Bank, it agreed to take $38 billion of Signature Bank's assets, including $25 billion in cash and about $13 billion in loans, from the Federal Deposit Insurance Corporation (FDIC).
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