Unlock Editor's Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
New York Community Bancorp speaks like it's around the corner. A day after the beleaguered local bank received a $1 billion lifeline from a consortium of high-profile investors led by former Treasury Secretary Steven Mnuchin, executives talk about „starting a new chapter“ and building a „fortress balance sheet.“ Told.
Such enthusiastic declarations seem premature. While this deal is great for new investors, it is highly dilutive for existing shareholders and will likely be temporary relief for them. NYCB's Capital needs following the Signature Bank acquisition pushed assets past the regulatory threshold of $100 billion. However, the problem remains that NYCB concentrates its lending on rent-regulated properties. The possibility of further capital increase or asset disposal cannot be ruled out.
under Trading conditions, NYCB is selling common stock and convertible preferred stock to new investors at a 38% discount from Tuesday's closing price. The jump in NYCB's share price since Wednesday's announcement means the group has already made a paper profit of more than $1 billion on its initial $1.05 billion investment, according to Rex's calculations. The new investors effectively bought 40% of NYCB stock at one-third of the company's book value.
The positive for the bank is the cash injection, which will immediately boost NYCB's capital ratio. The Common Equity Tier 1 ratio will rise to 10.3% and the total risk-based capital ratio will rise to 13%.
All of this assumes that NYCB does not record further losses or writedowns on its commercial real estate loan portfolio. Approximately 44 percent of NYCB's outstanding loans, or $37.2 billion, are multifamily properties. About half of these are New York City buildings that are subject to some form of rent control.
The value of these properties has taken a hit due to laws that have come into force since June 2019. Borrowers are struggling to refinance or sell their properties. At NYCB, more than two-thirds of New York City's $18.2 billion rent-regulated loan book is scheduled to mature between this year and 2027. Last month, it announced that 14 per cent of its loan book was considered „critical“ or at risk of default. Losses from potential loan sales will weigh on CET1.
One bright spot for NYCB is that 80% of its deposit base is insured or collateralized. Logically, this should keep deposit levels constant. In fact, the bank revealed Thursday that deposits have fallen by more than $4 billion, or about 5%, since the start of the year. Deposit flight remains a real risk.
Lex is the FT's flagship daily investment column. If you are a subscriber and would like to receive alerts when Lex articles are published, click the „Add to myFT“ button that appears at the top of this page, above the heading.