New York Community Bank stock turned positive after the lender said deposits increased

New York Community Bank stock turned positive after the lender said deposits increased

New York

Troubled regional lender New York Community Bancorp tried to reassure investors Wednesday that it has enough cash to stay afloat after the stock lost about 60% of its value over the past eight days and Moody’s Investors Service downgraded the bank’s credit rating to junk.

“Today’s challenge is not easy. But this company has a strong foundation, strong liquidity and a strong deposit base, which gives me confidence in our way forward,” Alessandro Dinello, the bank’s new CEO, said in a call with investors on Wednesday morning.

New York Commercial Bank has not seen “any outflow of deposits” from its retail branches in recent weeks, DiNello said.

The bank announced earlier Wednesday that it had appointed DiNilo, former president of Flagstar Bank, to the position effective immediately. NYCB (NYCB) purchased Flagstar in December 2022.

The Hicksville-based bank, which acquired $40 billion in assets from collapsed Signature Bank last March, said it has plans to hire a new chief risk officer and chief audit officer, replacing previous executives in those roles who left the company. With its shares declining.

“Total deposits have been up since approximately 2023, with all areas of the company performing strong, including our private banking and mortgage teams,” DiNello said on the call. “We are already in a strong liquidity position… and we are committed to building liquidity further.”

Investors were not immediately convinced. Shares of the stock fell as much as 14% earlier in the day. But around 2 PM ET, the stock turned positive and closed the day up 6.7%.

The bank said in a statement on Tuesday evening that the bank maintains total deposits amounting to about $83 billion. About $22.9 billion of those are uninsured. New York Commercial Bank’s total liquidity of $37.3 billion exceeds uninsured deposits with a coverage ratio of 163%, they said.

“Despite the downgrade from Moody’s, our deposit ratings from Moody’s, Fitch and DBRS remain investment grade,” Thomas Cangemi, president and CEO of New York Commercial Bank, wrote in the statement. “Moody’s downgrade is not expected to have a material impact on our contractual arrangements.”

JPMorgan also downgraded the bank’s stock on Wednesday from overweight to neutral, citing various headwinds to the New York Mercantile Bank’s ability to raise long-term debt. “It appears that the company will likely remain inwardly focused at least in the medium term,” they wrote. “As a result, we believe that the prudent strategy for investors currently is to move to the margin.”

DiNello said on Wednesday that the $116 billion bank will work to reduce its focus in the commercial real estate market. Office and retail property valuations have declined since the pandemic changed where people live, work and how they shop. The Fed’s efforts to combat inflation by raising interest rates also hurt the credit-reliant industry — and that was bad news for regional banks.

US banks hold about $2.7 trillion in commercial real estate loans. Most of that amount, about 80%, according to Goldman Sachs economists, is held by smaller regional banks – those that the US government has not designated as “too big to fail.”

It’s been nearly a year since the collapse of three U.S. regional lenders left financial institutions and regulators scrambling to prevent the banking crisis from spreading. Today, investors are worried they are returning to familiar territory.

But while the last crisis was about interest rate risks, this one is about the $20 trillion commercial real estate market.

Concerns were exacerbated last week when New York Commercial Bank reported a surprise loss of $252 million in the latest quarter compared to a profit of $172 million in the fourth quarter of 2022. The company also reported loan losses of $552 million, a significant increase from $62 million in Previous quarter. She added that the increase was due in part to expected losses on commercial real estate loans.

The sudden drop in share prices and Moody’s downgrade of credit ratings have led to concerns about a bank being run by uninsured depositors – those with more than $250,000 in their accounts.

These customers represented about 40% of New York Commercial Bank’s total deposits as of the third quarter of last year, according to the company’s earnings report. This is a much smaller share compared to Signature Bank and Silicon Valley Bank shortly before their demise.

Organizers remain ‘focused’

Minneapolis Fed President Neel Kashkari said Wednesday that the Fed is “paying very close attention” to the pressures facing New York Community Bancorp.

He added that most of the banks that have been under pressure recently do not face comprehensive problems with commercial real estate loans, but rather are concentrated in the office sector.

“We think it will be on a bank-by-bank basis as we see pressures mounting, and our bank supervisors are in very close contact with other supervisors across the country and, of course, with bank management to monitor their investment portfolios,” Kashkari said in an interview with CNN. NBC Wednesday morning.

He also said he is not currently concerned about contagion effects and the pressures appear to be “specific to individual banks with individual exposures.”

“I have concerns about commercial real estate,” Treasury Secretary Janet Yellen told lawmakers on Tuesday.

Her comments came during her testimony before a House Financial Services Committee hearing. She noted that some cities have been affected by an increase in empty office buildings.

Yellen said bank regulators are “very focused” on the issue, including by working with banks to manage risks, build reserves to cover losses, adjust dividend policies and preserve liquidity.

“I’m concerned. I think it’s manageable, although there may be some institutions that are very stressed by this problem,” Yellen said.

Federal Reserve Governor Adriana Kugler said on Wednesday that she is paying close attention to commercial real estate “as a source of vulnerability” for banks. Especially for office space, “valuations seem to be much higher than the actual fundamentals,” she said in a discussion hosted by the Brookings Institution.

“We are monitoring these issues closely,” said Kugler, a member of the Fed subcommittee that monitors small regional and community banks.

Meanwhile, Richmond Fed President Tom Barkin said Wednesday he was very concerned about the potential for a contagion effect as banks, pressured by their exposure to commercial real estate, seep into other parts of the financial system.

Several lawsuits have been filed against New York Commercial Bank alleging that the bank failed to communicate and misled shareholders about its financial condition, particularly regarding expected loan losses ahead of last week’s fourth-quarter earnings report. The lawsuits alleged that investors suffered losses as a result.

The New York Commercial Bank did not respond to CNN’s request for comment.

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