New York Community Bank said Thursday it lost 7% of its deposits in a turbulent month before announcing a capital injection of more than $1 billion from investors led by former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital.
The bank had $77.2 billion in deposits as of March 5, NYCB told investors. presentation tied to capital increases. That’s down from $83 billion as of Feb. 5, the day before Moody’s Investors Service downgraded the bank’s credit ratings to junk.
NYCB also said it was cutting its quarterly dividend for the second time this year, to 1 cent per share from 5 cents, an 80% cut. The bank paid a dividend of 17 cents before reporting a surprise fourth-quarter loss that began a cycle of negative news for the Long Island-based lender.
Before Wednesday’s announcement of a major rescue from a group of private investors led by Mnuchin’s Liberty Strategic Capital, NYCB shares were in a tailspin due to concerns about the bank’s loan book and deposit base. In just over a month, the bank changed its CEO twice, witnessed two rounds of ratings downgrades and announced mounting losses.
At its lowest point, NYCB shares fell below $2 per share on Wednesday, down more than 40%, before eventually recovering to finish the day higher. Shares were up 10% in Thursday morning trading.
The capital infusion announced on Wednesday raised hopes that the bank now has enough time to resolve lingering questions about its exposure to loans to multifamily apartments in the New York area, as well as “material deficiencies” in the loan review, o which the bank disclosed last week.
“Very attractive” bank
Mnuchin told CNBC in an interview Thursday that he started looking at NYCB “a long time ago.”
“The problem has really been the perceived risks on the loans, and putting billions of dollars of capital on the balance sheet really strengthens the franchise, and any problems that arise in the loans, we will be able to solve,” Mnuchin said in an interview with CNBC. “Screaming on the street.”
“I think there is a great opportunity to develop it into a very attractive regional commercial bank,” he added.
Mnuchin said he had conducted a “thorough review” of NYCB’s loan portfolio and that the “biggest problem” he found was the New York office’s loans, although he expected the bank to build up reserves over time.
“I don’t think the New York office will get better or better in the future,” Mnuchin said.
Lender reduction?
New CEO Joseph Oetting, the former Comptroller of the Currency, told analysts on Thursday that the bank will seek to strengthen its capital and liquidity levels and reduce its concentration on commercial real estate loans.
According to Piper Sander analysts led by Mark Fitzgibbon, NYCB will likely have to sell assets, as well as create provisions and write them down.
The bank, which has $116 billion in assets, is assessing whether it should cut assets below a key threshold of $100 billion, which would trigger additional regulatory scrutiny over capital and risk management, executives said Thursday.
Asked by an analyst about fears of deposit withdrawals following the ratings agency’s downgrade, NYCB Chairman Alessandro Dinello said the bank had received “denials” that allowed it to retain depository accounts that might otherwise have disappeared.
“Now I think with this capital increase, we’re hopeful that this relationship will remain as it is,” Dinello said.
While news of Mnuchin’s investment is generally good for regional banks, Wells Fargo analyst Mike Mayo warned that the commercial real estate loss cycle is just beginning as loan maturities come due this year and next, likely creating even more pain for lenders.
— CNBC’s Laya Neelakandan and Ritika Shah contributed to this report.
Correction: New York Community Bank announced an investment Wednesday from a group of private investors. An earlier version of this story misstated the date.