New York Community Bank said Thursday it lost 7% of its deposits in the tumultuous month, before announcing a capital injection of more than $1 billion from investors led by former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital.
The bank had $77.2 billion in deposits as of March 5, NYCB said in an investor presentation related to the capital raise. That was down from $83 billion on Feb. 5, the day before Moody’s Investors Service cut the bank’s credit rating to junk.
NYCB also said it is cutting its quarterly dividend for the second time this year, from 5 cents to 1 cent per share, an 80% decline. The bank paid a 17-cent dividend until it reported a surprise loss in the fourth quarter, triggering a negative news cycle for the Long Island-based lender.
Before a group of private equity investors led by Mnuchin’s Liberty Strategic Capital announced a decisive bailout on Wednesday, NYCB’s stock was in crisis due to concerns about the bank’s loan portfolio and deposit base. In just over a month, the bank changed its CEO twice, experienced two rounds of downgrades from ratings agencies and announced mounting losses.
At its low point on Wednesday, NYCB stock sank below $2 a share, down more than 40%, before eventually recovering and ending the day higher. Shares rose 10% in Thursday morning trading.
The capital injection announced Wednesday raised hopes that the bank will now have enough time to resolve outstanding questions about its exposure to multifamily housing loans in the New York metropolitan area, as well as the “material weaknesses” related to underwriting that the bank disclosed last week has.
“Very attractive” bench
Mnuchin told CNBC in an interview on Thursday that he began engaging with NYCB “a long time ago.”
“The issue was really about the perceived risks of the loans, and bringing billions of dollars of capital to the balance sheet will really strengthen the franchise and whatever problems there are with the loans, we’ll be able to address them,” Mnuchin told CNBC “Circle in the street.”
“I think there is a great opportunity to make this a very attractive regional commercial bank,” he added.
Mnuchin said that he had conducted a “comprehensive review” of NYCB’s loan portfolio and that the “biggest problem” he found was office loans in New York, although he expected the bank to build reserves over time.
“I don’t think the New York office is working or getting better in the future,” Mnuchin said.
Shrinking lender?
New CEO Joseph Otting, a former comptroller of the currency, told analysts on Thursday that the bank would seek to strengthen its capital and liquidity and reduce its concentration on commercial real estate loans.
According to analysts at Piper Sander led by Mark Fitzgibbon, NYCB will likely need to sell assets, build reserves and take write-downs.
The bank, which has $116 billion in assets, is currently considering whether to reduce its assets below the key $100 billion threshold, which brings additional regulatory scrutiny of capital and risk management, executives said Thursday.
Asked by an analyst about the feared departure of deposits following downgrades by the ratings agency, NYCB Chairman Alessandro DiNello said the bank had received “waivers” that allowed it to retain deposit accounts that might otherwise have been lost.
“Now I think with this capital increase, we are confident that this relationship will continue to be as it is,” DiNello said.
While the news about the Mnuchin investment is good overall for regional banks, Wells Fargo analyst Mike Mayo warned that the commercial real estate loss cycle is just beginning, with loans coming due this year and next, likely to add to lenders’ losses will cause more problems.
—CNBC’s Laya Neelakandan and Ritika Shah contributed to this report.
Correction: New York Community Bank announced an investment from a group of private equity investors on Wednesday. An earlier version of this story misstated the day.
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2024-03-07 17:07:43
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