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New York Community Bank Preferred Being Crushed Again

Once again the 6.375% preferred shares of New York Community Bank (NYCB-A) are being crushed – trading around $14.65/share right now. Of course the dividends are non-cumulative which always leads to investors being concerned with any potential dividend suspension.

We also have the ghosts of Silicon Valley Bank etc which puts an inordinate amount of fear into investors–don’t want to go to zero. I don’t think this will happen, but deposits can move quickly–one never knows what will happen.

21 thoughts on “New York Community Bank Preferred Being Crushed Again”

  1. 2/8 Citi lowered the firm’s price target on New York Community Bancorp to $5 from $7 and keeps a Neutral rating on the shares. The analyst is encouraged by the comments from new Executive Chairman Alessandro DiNello but believes the bank’s intermediate outlook is challenging with a 7% ROTCE and very low payout as it looks to build capital. The firm cites lower estimates for the target drop.

    2/5 Citi 4Q23 Review – Bar Has Been Raised; Lowering Target To $7
    NYCB has significantly underperformed since 4Q earnings after missing expectations on NII, credit, and expenses, and then slashing the dividend leaving the stock at 0.6x TBV reflecting increased level of uncertainty as well as questions about longer term return profile. The stock has recently traded at a premium to TBV on hopes of a business model transformation driving low double-digit ROTCE, but the 2024 guidance now calls that into question. Our view is normalized ROTCE feels to us to be in the 8-10% range. It’s possible we are too conservative in our return outlook, but we don’t see a lot in near-term to change perception and see better risk/reward elsewhere. Neutral/High Risk with a lower $7 target price.

    2/7 BofA downgraded New York Community Bancorp to Neutral from Buy with a price target of $5, down from $8.50. The firm believes the persistent selloff in the stock over the last two days is tied to perceived risks about commercial real estate, or CRE, and the heightened regulatory scrutiny the bank faces. While the firm thinks the bank has enough liquidity to navigate the current period, the bank’s EPS power and strategic outlook are now “muddied,” the analyst tells investors.

    2/7 New York Community Bancorp’s (NYCB) credit rating was cut by Moody’s by two notches to junk; Moody’s cited “financial, risk-management and governance challenges” for NYCB.

    2/4 MS: Share price of New York Community Bank (NYCB) tempered its fall on Friday but was still down -42% last week. Our U.S. Midcap Banks analyst Manan Gosalia mentioned in his latest report (see What NYCB’s Results Mean for the Midcap Banks) that last Wednesday NYCB reported an unexpected operating loss for 4Q23 on higher loan loss provisions. The miss on provisions came from two large charge-offs — one interest rate mark on a multi-family co-op loan, and a credit charge-off on an office loan — that took the NCO (Net Charge-Off) ratio up 76bps Q/Q to 0.88%, and an increase in the loan loss reserve ratio from 0.74% to 1.17%. The drivers of NYCB’s net increase in loan loss reserves were 1) weakness in the office sector and potential re-pricing risk primarily within the multi-family portfolio; and 2) the need to increase their reserve ratio towards Category IV bank peers (banks with $100Bn-250Bn in assets). NYCB moved into the Category IV bucket in 1Q23 when they bought assets of Signature Bank from FDIC receivership, which increased NYCB’s total asset size over $100Bn. Category IV banks have a tougher regulatory standard than banks that are smaller than $100Bn. The bank also cut their dividend, and guided to an additional build in liquidity and declining loans in 2024.

    2/2/24 GS (not covered but color on flow): The focal point in Financials this week was with NYCB earnings. For the most part, we think investors seemed to agree that the issues at NYCB were more idiosyncratic in nature (though could have some read-thrus to other CRE centric banks) and that the group broadly had likely just been trading too rich in the context of credit choppiness. On the desk clients were trading expressions of long large cap banks vs smaller regionals as well as outright downside buying in regional banks.

    2/2 Deutsche Bank downgraded New York Community Bancorp to Hold from Buy with a price target of $7, down from $15. The shares are down 45% since the bank reported “very disappointing” Q4 earnings which included a meaningful increase in credit provision and a step down in the net interest margin outlook, the analyst tells investors in a research note. The downgrade is a “tough call given the sharp sell-off and low valuation,” but there is also a lot of uncertainty surrounding New York Community’s credit quality and net interest income and resulting earnings, says the firm.

    2/1 Jefferies downgraded New York Community Bancorp to Hold from Buy with a price target of $7, down from $13. The analyst cites the “unexpectedly faster” regulatory mandate to Cat IV bank compliance for the downgrade. The bank’s actions taken thus far are a solid step forward, but impair profitability significantly given a need to run with higher capital, liquidity and reserves while trailing Cat IV peers modestly, the analyst tells investors in a research note. The firm expects New York Community’s path to improved profitability will take years while credit risk remains an overhang.

    2/1 RBC Capital downgraded New York Community Bancorp to Sector Perform from Outperform with a price target of $7, down from $13. The bank’s Q4 results had several negative surprises, including a higher than expected provision and reserve build, a meaningfully lower margin and outlook, and a dividend cut announcement, the analyst tells investors in a research note. The analyst believes many of these trends are related to the company crossing the $100B asset mark and becoming a Category IV financial institution, which is driving increased liquidity and compliance needs.

  2. Watched NYCB U All day. The lemmings jumped out the window earlier this morning and it hit about 19 then the coyotes came in to pick the bones and it ended the day at 25.55 off .44 from the close yesterday.
    Looks like it has hit a bottom. Over the next couple days will see some ups and downs as traders take profits. If it limps into the weekend it should survive unless there’s more bad news. They can suspend the dividend on U but it is cumulative. Unless they go under. Wouldn’t look good for the Feds if the bank they chose to buy the assets from a failed bank also failed. People speculate a tbtf bank might take them over but Jamie Dimon was saying he wasn’t interested in buying other midsize banks right now.

    1. Charles, I posted on Sandbox the tax ramifications on U. I believe if it is suspended (22 quarters!) phantom income will be generated. Also purchasing at this price, surely allows one to differ with the distribution percentages? I hope Justin can opine as he knows his tax stuff! I may ask my guy but it will be weeks before he has time to answer.

      1. Holy smokes. I missed that fall yesterday.
        Buying a $50 face bond for less than $20 a bond would lead to some crazy capital gains.

    2. I don’t think they will suspend the dividend; its kiss of death for a bank to do so. But the cumulative feature is a nice safety blanket nevertheless.

      I am dumbfounded over the fear mongering articles, and they all start with SVBB/FRB, then add “if there is a deposit run…” All these people do not want to understand the nuances of why FRB/SVB failed. NYCB has idiosyncratic risk, but its capital position is not underwater from a capital perspective like FRB/SVB, who took too much rate risk loading its balance sheet with low-rate assets (loans for FRB and investments for SVB), and when the fed increased rates in such a short time, gave them little time to rematch their ALM. Add in a vicious cycle of a lost in non-insured depositor confidence, and those two circled the drain…

      NYCB is not without risk, but unlike the 2023 regional bank crisis, they have time to course correct because they can bleed their allowance ramp and capital build over the course of 2024. I also don’t like how they fired their CRO and swept it under the rug. However, them appointing Dinello as exec chair is stabilizing, and telegraphs their longer-term approach (eventual one-rebranding into Flagstar).

      The two risks I am looking at are short term, deposit run, and intermediate term, multifamily book repricing. NYCB is going to be managing internally and won’t be growing anytime soon. They said in the quarter call that they are going to a more relationship lending based model and will let those who dont add to their core deposits walk (if they can).

      I get the decline in the commons, you have huge miss, then add lower earnings power as they build their capital and allowance. Then you have to add earnings power uncertainty from rightsizing their balance sheet – you won’t really know their earnings power until their book settles (its obviously cheap, but the million-dollar question is how cheap versus the risk of a donut). So that sentiment on the commons last few days bled into the trading for the preferreds, which you would think a dividend cut plus capital raise is positive for the preferreds. Oh well… we’re too focused on bank runs and cre risk to focus on the opportunity and real risks in nycb…

      Long NYCB-U

      1. “But the cumulative feature”
        The NYCB preferred A is NOT cumulative. and the series U is debt, not equity, and there is no such thing as cumulative debt

          1. Clumsy language because this is a trust that owns bonds, and the trust is disregarded, so calling them cumulative dividends fundamentally misrepresents what they are, since they are interest payments.

            And this was the part I referred to, about being able to defer the payment of interest without being held in default, which is what happens if you skip paying interest on 99% of other bonds in existence.

            “So long as NYCB is not in default in the payment of interest on the
            debentures and a failed remarketing has not occurred, NYCB will have the right under the indenture to defer payments of interest on the debentures by extending the interest payment period at any time, and from time to time, on the debentures.”

            Once they defer, phantom OID Income kicks in.

    3. Oh my. A Bifurcated Option Note Unit Securiti ES…. BONUSES

      I just wanted to see if there was a serious tax nightmare on recognition of phantom activity that was lurkering out there. It looks like no. But I’ve heard of some other k1 events that caused issues within Ira’s. But not for NYCB…. Just owning in Ira sometimes isn’t full proof

      NYCB is on the ropes. I hope they can make it. If you ask me this is another mistake by fdic occ treasury forcing them to publicly write off loan value. After all they helped the fed when they bought loans from Signature.

  3. I’m betting NYCB-A will be ok. Picked up some at 14.73 this morning. Ended the day at 16.15. Was up to over 17 and I’m sure some flipping was going on.

  4. Tim ; imho this is a mini panic ( nothing compared to May) with too many “chicken littles” ; there are several Regional Bank preferred that are on sale
    DCOM VLYPO ; i’m sticking with NYCBpU which is not looking pretty right now.

  5. I got burned by the signature bank preferreds. They were investment grade when I bought them. They went to zero over a weekend. I have since sold all of my regional bank preferreds. I even wonder if my BAC-L and WFC- L are really that safe for a retirees portfolio?

    1. Hang in there, Ricky. The common perception is that the larger banks are much more stable than the regionals or smaller banks. You could always buy an ETF so you are diversified instead of holding individual issues. Good luck!!

    2. Yes they are. The TBTF banks are too big to fail!! The downside is limited…but the upside as well. The Q is why risk much to get a little? We can’t risk free return of 5, why reach to get 6.5? Putting 100 down to earn 1 or 2. Yes they may work out for total return but tread carefully. Have a list of what you like, at what price, and WHY you believe they are solvent so the next time we get another rush for the exits maybe your prep w help you make the move.

      Right now fixed to floats W RISK are 9-10%.

  6. Moody’s just downrated NYCB to junk status. Haven’t read the report. So I don’t know the particulars. Just saw it on the news.

  7. I will be interested to see how depositors react to this issue. One aspect of the ghost of Silicon Valley Bank is that all (domestic) depositors were protected, even if accounts exceeded $250K. That might create an expectation that the same would happen here, and make depositors slower to change banks.

  8. DCOMP down in sympathy with NYCB preferreds. Went ex-div today. DCOM already reported their quarter, not great, but they certainly didn’t say anything that would be very concerning, at least that I could find. DYODD!!

  9. They have two subordinated bonds.

    The 2028 is currently bid/ask 76/78.
    Their 2030 is less liquid, 64/71.

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