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New York Community Bancorp, a troubled regional lender, made efforts on Wednesday to provide reassurance to investors regarding its ability to remain financially stable. Despite experiencing a significant decline of approximately 60% in its stock value over the past eight days and having its credit grade downgraded to junk by Moody’s Investors Service, the bank stated that it possesses sufficient liquidity to continue operating.
Alessandro DiNello, the newly appointed executive chairman of the bank, expressed his belief in the face of the current challenge. He acknowledged that the task at hand is not simple, but he emphasised the company’s robust foundation, substantial liquidity, and solid deposit base. These factors instil confidence in him regarding the future direction of the company. During a call with investors on Wednesday morning, DiNello also highlighted that NYCB has experienced minimal withdrawal of deposits from its retail branches in recent weeks.
The appointment of DiNello, the former president of Flagstar Bank, as the bank’s new executive was announced by the bank on Wednesday. This decision comes after NYCB acquired Flagstar in December 2022. In addition to this appointment, the Hicksville-based bank has also revealed its plans to hire a new chief risk officer and chief audit executive.
During a call, DiNello expressed his satisfaction with the company’s performance, stating that overall deposits have increased since 2023. He specifically highlighted the strong performance of the private banking and mortgage teams. DiNello also emphasised the bank’s strong liquidity position and their commitment to further enhancing liquidity.
According to a statement released by the bank on Tuesday evening, their total deposits amount to approximately $83 billion, with $22.9 billion being uninsured. The bank also stated that their total liquidity stands at $37.3 billion, surpassing the uninsured deposits with a coverage ratio of 163%.
Thomas Cangemi, NYCB’s president and CEO, stated that despite the Moody’s ratings downgrade, our deposit ratings from Moody’s, Fitch, and DBRS remain at an investment grade. He further mentioned that the Moody’s downgrade is not expected to have a significant impact on our contractual arrangements. On Wednesday, DiNello emphasised that the $116 billion lender will actively work towards reducing its concentration in the commercial real estate market. The decline in office and retail property valuations due to the pandemic’s impact on people’s living and working habits, as well as changes in shopping behaviour, has adversely affected the credit-dependent industry.
Additionally, the Federal Reserve’s efforts to combat inflation by increasing interest rates have further impacted the industry, which has been particularly challenging for regional banks. According to Goldman Sachs economists, smaller regional banks, which are not classified as “too big to fail” by the US government, hold approximately 80% of the $2.7 trillion in commercial real estate loans held by US banks.
The crisis in regional banking has caused significant upheaval in the financial sector.
Financial institutions and regulators were caught off guard when three US regional lenders collapsed almost a year ago, triggering a frantic effort to contain the potential contagion of a banking crisis. Presently, concerns are resurfacing among investors, who fear a return to the same troubling circumstances.
However, this time around, the focus of the crisis has shifted from interest rate risk to the vast $20 trillion commercial real estate market. Last week, concerns were heightened as NYCB reported an unexpected loss of $252 million in the last quarter, in contrast to the $172 million profit recorded in the fourth quarter of 2022. Furthermore, the company revealed a significant rise in loan losses, reaching $552 million, compared to $62 million in the previous quarter. The increase in losses can be attributed, at least in part, to projected setbacks in commercial real estate loans, as stated by the company.
Concerns of a potential bank run among uninsured depositors arose due to the abrupt decline in stock price and the downgrade by Moody’s. These depositors, who held more than $250,000 in their accounts, accounted for approximately 40% of NYCB’s total deposits in the third quarter of the previous year, as stated in the company’s earnings filing. However, this percentage is notably lower compared to the proportions observed prior to the collapse of Signature Bank and Silicon Valley Bank.