Wall Street worries about NYCB’s loan losses and deposit levels

A sign is pictured above a branch of the New York Community Bank in Yonkers, New York, U.S., January 31, 2024.

Mike Segar | Reuters

Regional lender New York Community Bank finds itself in an apparently worsening predicament just as the anniversary of last year’s banking turmoil nears.

Shares of the troubled lender plunged 25% on Friday to below $4 apiece after NYCB restated recent quarterly earnings lower by $2.4 billion, formally replaced its CEO and delayed the release of a key annual report.

The most worrying development, though, is directly tied to investors’ fears about commercial real estate and shortfalls the bank reported in a key aspect of its business: NYCB said that poor oversight led to “material weaknesses” in the way it reviewed its portfolio of loans.

Shares of NYCB fall more than 20% after bank discloses ‘internal controls’ issue, CEO change

The disclosure is a “significant concern that suggests credit costs could be higher for an extended period,” Raymond James analyst Steve Moss said Thursday in a research note. “The disclosures add to our concern about NYCB’s interest-only multi-family portfolio, which may require a long workout period unless interest rates decline.”

In a remarkable reversal of fortunes, a year after deposit runs consumed regional lenders including Silicon Valley Bank, NYCB — one of the perceived winners from that period after acquiring a chunk of the assets of Signature Bank following government seizure — is now facing existential questions of its own.

Tough quarter

The bank’s trajectory shifted suddenly a month ago after a disastrous fourth-quarter report in which it posted a surprise loss, slashed its dividend and shocked analysts with its level of loan loss provisions.

Days later, ratings agency Moody’s cut the bank’s credit ratings two notches to junk on concerns over the bank’s risk management capabilities after the departure of NYCB’s chief risk officer and chief audit executive.

At the time, some analysts were comforted by the steps NYCB took to shore up its capital, and noted that the promotion of former Flagstar CEO Alessandro DiNello to executive chairman boosted confidence in management. The bank’s stock was briefly buoyed by a flurry of insider purchases indicating executives’ confidence in the bank.

DiNello became CEO as of Thursday after his predecessor stepped down.

Deposit update?

Now, some are questioning the stability of NYCB’s deposits amid the tumult. Last month, the bank said it had $83 billion in deposits as of Feb. 5, a slight increase from year-end. Most of those deposits were insured, and it had ample resources to tap if uninsured deposits left the bank, it said.

“NYCB still has not provided an update on deposits, which we can only infer … are down,” D.A. Davidson analyst Peter Winter said Thursday in a note.

“The question is, by how much?” Winter asked. “In our view, corporate treasurers were reassessing if they are going to keep deposits at NYCB when their debt rating was downgraded to junk.”

In a statement released Friday announcing a new chief risk officer and chief audit…

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