New York Community Bancorp Inc. is bullish on a turnaround after the latest capital injection helped stabilize its deposit base and the addition of a CEO with bank cleanup and regulatory experience.
In recent weeks, the company has been dealing with fallout from a number of negative headlines. On March 6, some customers lined up to withdraw deposits amid press reports of the bank seeking capital, but the volatility was quickly stabilized by the announcement of the capital raise in the afternoon of the same day, New York Community Bancorp's President and CEO Alessandro DiNello said March 7 during an investor call.
DiNello also noted that the company experienced deposit outflows after it published a Form 8-K filing on Feb. 29 that revealed material weakness in internal controls, but it started winning back deposits early in the week of March 4. New York Community's concentration on commercial real estate (CRE) and meeting the regulatory requirements that come with crossing the $100 billion asset threshold were other factors spurring concerns.
"It's not easy when you have that kind of bad news over and over, but the resilience of this portfolio should give investors confidence that now that we have security of the bank in place with this significant capital infusion, that we're going to go hard forward," DiNello said.
The capital raise included a combined investment of more than $1 billion made by Liberty Strategic Capital, a fund led by former US Treasury Secretary Steven Mnuchin; Hudson Bay Capital Management LP; and Reverence Capital Partners LP; with participation from Citadel Securities LLC and the company's management. The capital raise announcement — which also noted that former Comptroller of the Currency Joseph Otting would take over as CEO — also helped stabilize the company's stock price, which was up nearly 8% as of 12:10 p.m. ET.
Otting will take the helm effective April 1. As a regulator, Otting oversaw nearly 1,400 banks regarding their compliance practices, safe and sound operations, DiNello noted. Otting, CEO of OneWest Bank from 2010 to 2015, is no stranger to navigating challenges as a bank executive, DiNello said.
"I'm confident that he has the requisite expertise, variance and acumen and is the right person to steer Flagstar's go-forward strategy," DiNello said.
During the call, the company did not provide updates on future plans regarding selling assets, building reserves or growing deposits. It plans to release details on its strategy in April around the time of its first-quarter earnings call.
However, Otting did not rule out more strategic actions including taking down the CRE concentration and shrinking the balance sheet. There are liquidity-chasing opportunities for loan portfolios, as parties are interested in buying assets specifically outside the banking industry, Otting said.
While banks crossing the $100 billion asset threshold are currently under the spotlight, the company will assess its ability to function as a Category IV bank, and whether it wants to shrink below the threshold, Otting said.
As New York Community engineers the turnaround, it intends to accelerate conversations with rating agencies given changes in capital, liquidity and deposits, Otting said.
The company did provide an update on deposits. As of March 5, total deposits of its bank unit Flagstar Bank NA stood at $77.2 billion. It was down 5% from the end of 2023 despite recent events, Otting said. The decline was only modest given investors' concerns, and it did not come with unreasonable costs, DiNello added.
"We were business as usual," DiNello said. "I can't tell you how many depositors I spoke to, in an effort to give them confidence in the company. But we didn't go out and offer 6% [certificates of deposit] or something like that in order to make the numbers look good."
On credit quality, Otting noted that while two of its lending categories of multifamily and Manhattan offices are seeing stress, the company will continue to deploy good risk and credit management practices, Otting said.
"At this point in time, we continue to look at that and feel comfortable that the book is being managed properly," Otting said.
DiNello added that credit quality is a frequent discussion topic. He said while classified assets are increasing, delinquencies are not. "The migration from classified to delinquent just hasn't happened," DiNello said.
He added that the company is prepared to deal with the credit situation. "We want to put to bed the concern that we can't handle whatever that might be," DiNello said.
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