New York Community Bancorp (NYCB.N) shares tumbled again on Wednesday, as investors continued punishing the lender despite its appointment of a new executive chairman and plans to potentially cut exposure to the troubled commercial real estate (CRE) segment.
Shares of NYCB were recently down 1.5%, extending a selloff that has eroded more than 60% of their value since last week. The bank last week posted asurprise quarterly loss due to huge provisions for loans tied to the CRE industry and cut its dividend to deal with tough regulation.
Banking veteran Alessandro DiNello, who was appointed executive chairman on Wednesday and has been on the board since NYCB bought Flagstar Bank in 2022, said the lender will, if needed, shrink its balance sheet by selling non-core assets to increase common equity tier 1 ratio, a key measure of financial strength.
DiNello also said the bank will consider the sale of loans in its CRE portfolio or allow them to run off the balance sheet naturally.
"The challenge today is not easy. But this company has a strong foundation, strong liquidity and a strong deposit base, which gives me confidence for our path forward," DiNello said on a call with analysts.
Higher borrowing costs and low occupancies due to remote working have pressured CRE-tied borrowers, who are now at the risk of defaults, analysts have warned. Federal Reserve Chairman Jerome Powell last week shot down hopes of a March interest rate cut, saying policymakers needed to see more evidence that inflation was cooling.
“Stress in the regional banking sector has resurfaced,” said PIMCO economist Tiffany Wilding in a note to investors. “While we don't believe these issues are likely to become systemic, they do emphasize how high rates can create an environment of increased financial stability risks.”
New York Community Bancorp is seeking to sell part of its loan book and also bring in investors that would assume part of its residential mortgages' credit risk, a person familiar with the matter said. Bloomberg reported the company’s efforts to do so earlier on Wednesday.
The lender's quarterly report has led a dozen brokerages to cut their price targets or their ratings on the stock, while its market value shrank to around $2.75 billion from the $7.5 billion before the selloff began.
J.P. Morgan's Steven Alexopoulos kept his "neutral" rating.
"The company will remain inward focused at least over the intermediate term and prioritize building capital rather than growing the company,” Alexopoulos said. “We see the prudent strategy for investors for now is to be moving to the sidelines on the stock.”
The bank's shares, which plumbed lows not seen since 1997, last traded at $4.02.
The broader KBW Regional Banking index (.KRX) was unchanged on Wednesday, after shedding nearly 11% over the past week.
Evidence of further trouble in the commercial real estate sector came as shares of KKR Real Estate Finance Trust (KREF.N) fell 20% to $9.42, their lowest since March 2020, after the company slashed its dividend.
There was little sign, however, that worries over the banking sector turmoil had seeped into the broader market. The S&P 500 (.SPX) was recently up 0.7% after hitting a record high.
Last year's regional banking crisis "was bad" but "it proved not to spread. And this even seems to me to be more so very specific about one bank," said Eric Kuby, chief investment officer at North Star Investment Management Corp.
CREDIT RATING CUT
NYCB CEO Thomas Cangemi said Moody's downgrade was not expected to have a material impact on its contractual arrangements.
Deposit ratings measure a bank's ability to meet its deposit obligations and are different from credit ratings, which gauge its ability to repay debt.
The bank said its total deposits of $83 billion were up from $81.4 billion at the end of 2023. Total liquidity of $37.3 billion also exceeds uninsured deposits.
"We view this as a healthy margin of safety," Piper Sandler analysts said, while maintaining their "overweight" rating.
"The company's liquidity and deposit positions are markedly better than almost anybody thought yesterday."
