New York Community Bank Scrambles for Stability

Sometimes there’s nowhere to go but up.

Shares of New York Community Bank found some life on Wednesday, reversing a descent that began last week when the company unexpectedly announced it had swung to a quarterly loss and decided to slash its dividend by about 80%. At the time, the bank cited weakness in the office sector for two plus-sized loan charge-offs that evaporated its bid for a quarterly profit. Considering regional and smaller banks hold about 70% of all loans in the wobbly commercial real estate sector, that wasn’t great news for the stocks of any smaller banks. Amid New York Community’s selloff, the KBW Regional Bank Index has slid about 11%.

When it Rains

Despite the uptick in NYCB shares, things are no less glum than a week ago. Bloomberg reported on Monday that the Office of the Comptroller of the Currency, the federal bank watchdog, had pressured New York Community to slash its dividend and stockpile cash to protect itself against more bad loans. While that’s a seemingly justifiable strategy, no investor in a small or regional bank is that jazzed about the need for — or even the appearance of — federal intervention. Then, rumors of a credit downgrade from Moody’s came to fruition late Tuesday, with the agency cutting its rating on New York Community’s debt two notches to junk, saying the move “reflects multifaceted financial, risk-management and governance challenges.” Nitpickers. 

With its back somewhat against the wall, and its stock now down about 55% in a week, New York Community is attempting to soothe the market:

• The bank shifted Alessandro DiNello into the role of executive chairman (from nonexecutive chair) on Wednesday, in an attempt to quell the “who’s running this place” concerns. DiNello said in a conference call that the company “will do whatever it takes” and noted that the bank had seen “virtually no deposit outflow” from its retail branches. No bank run here, folks, is the message at hand.
• Part of “whatever it takes” is likely offloading a lot more risk from the bank’s ledger. Bloomberg reported on Wednesday that the bank has been reaching out to investors to help finance a risk-transfer transaction for a portfolio of residential mortgages, and also is reportedly exploring the sale of $1 billion in RV and marine loans. That… is a lot of boats.

New York Community’s “someone is in charge here” message did seem to put a floor under its stock, which closed Wednesday nearly 7% higher.

Loan Laments: Funtime is over: While overall US credit-delinquency rates are still below pre-Covid levels, that’s no longer the case for credit card balances and auto loans. The Federal Reserve Bank of New York said earlier this week that the rising delinquencies “signal increased financial stress, especially among younger and lower-income households.” While the economy has been consistently fueled by the resilience of consumers, binging on debt may be catching up with them.