Propmodo Daily

By Franco Faraudo · Feb. 14, 2024

Greetings!

New York Community Bancorp is the focus of a lot of negativity right now. After acquiring Signature Bank’s commercial loans and showing a surprise loss in Q4 of last year, NYCB has seen its stock price plummet over 60%. We wanted to take a closer look at just how dire the situation really is.

Also, today we're delving into the increasing concern over e-bike fires for property owners and managers. With a rise in building fires, sometimes resulting in fatalities, the conversation around proper e-bike storage and preventive measures is becoming more urgent.

Now, let's dig in!

Is New York Community Bancorp in Danger of Bankruptcy?

Recently, global concerns over a looming refinancing crisis in commercial real estate have centered on New York Community Bancorp. The bank has been in the spotlight for a couple of significant reasons. Initially, it grabbed headlines for acquiring Signature Bank's lending portfolio worth $13 billion from the FDIC, which led to its shares jumping by over 30% on that day. Then, in July 2023, the bank made news once more when its stock soared after exceeding expectations by 150%.

As the Federal Reserve increased interest rates, worries about its lending portfolio, which is now composed of about 46 percent commercial real estate loans, have intensified. In December, NYCB reported a quarterly loss. Then, in January 2024, the Federal Reserve declared the conclusion of its Bank Term Funding Program, which offered loans to banks to aid in preventing bank runs. Following this announcement, USCB stocks plummeted by over 60%, thrusting them back into the spotlight as a cautionary example of the risks associated with commercial real estate lending.

Recent inflation figures indicate we're still not meeting the Federal Reserve's 2% target, tempering expectations for rate cuts in the upcoming March meeting. This situation has heightened concerns about the capacity of commercial real estate lenders to refinance their loans, casting New York Community Bancorp (NYCB) as a focal point of these anxieties. The question arises: are the worries about NYCB's potential collapse under its loan obligations justified?

Examining NYCB's portfolio provides some insight. During their last earnings call on December 31, 2023, commercial loans accounted for 46% of their total loan portfolio, a significant proportion for any bank. However, the situation appears less alarming upon discovering that multi-family loans, which are generally considered more stable, constitute 44% of the total loans. CEO John Pinto expressed confidence in the quality of the multi-family loan portfolio during the call, noting an absence of early-stage delinquencies at that time.

While multi-family real estate has its challenges, it hasn't been as adversely affected as the office sector. But what if NYCB faces a wave of delinquencies or defaults? The bank has been bolstering its Allowances for Credit Losses (ACL), achieving a coverage ratio (the proportion of reserves to loans) of 1.26% in the fourth quarter, a significant increase from 0.80% in the previous quarter. Since the third quarter of 2022, NYCB has augmented its reserves by $774 million, indicating a strategic approach to managing potential credit risks.

One factor putting New York Community Bancorp (NYCB) in a relatively stronger position regarding reserves, compared to some other regional banks, is its recent acquisition of Signature Bank's loans, which boosted its assets to over $100 billion. This transition elevated NYCB to a Class IV bank status, subjecting it to higher reserve requirements, as well as regular reporting and stress testing mandates. The bank's CEO cited these new regulatory requirements as a key reason behind the bank's recent reported loss.

The future for NYCB remains uncertain, yet it appears to be on firmer financial ground than institutions like Signature or Silicon Valley Bank were prior to their collapse. The stock has suffered more from the perception of being heavily invested in commercial real estate (CRE) than from any immediate financial peril. But, in today's financial climate, perception often becomes reality. The greatest risk to NYCB could stem from a potential bank run, triggered by widespread concern over its loan portfolio amid rising interest rates. This underscores the critical importance of managing both financial health and public perception in the current economic landscape.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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