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Plummeting commercial real estate values may prompt New York Community Bancorp to tap into more stable assets — mortgages born in an era of low interest rates — to shore up its balance sheet.
New York Community Bancorp (NYCB) is considering pledging about $5 billion in mortgage loans originated by Flagstar Bank to support a “synthetic risk transfer” that would strengthen its capital reserves. Bloomberg reported on WednesdayThis was reported by an anonymous source with knowledge of the meeting.
NYCB, Acquired Flagstar Bank 2022is one of several regional financial institutions that may need new capital if its performance in lending to commercial developers continues to deteriorate. With office and retail vacancy rates remaining high in many markets even after the pandemic, the value of the real estate used as collateral for the loan is sometimes less than the loan balance.
Since reporting Fourth quarter loss of $252 million On January 31st, NYCB stock lost more than half its value.Bank stocks plummeted 52-week high $14.22 On July 28, the stock briefly hit a 52-week low of $3.60 on Wednesday, but has since climbed back above $4.
NYCB announced in its earnings report that it increased its allowance for credit losses by 533% to $833 million. Fourth-quarter write-offs of $117 million in multifamily loans and $42 million in commercial real estate loans also set off alarms for investors. These concerns were further amplified by Fitch rating And Moody’s Investors Service has downgraded NYCB’s credit rating, potentially increasing the bank’s borrowing costs.
“From a financial strategy perspective, the bank is looking to recapitalize, but has just suffered an unexpected loss in commercial real estate, which is a key concentration for the bank.” Moody’s analysts said: Tuesday.
Moody’s analysts said they were also concerned that NYCB’s chief risk officer, Nick Manson, and chief audit officer, Megan Belfinger, resigned without notice before the financial results were released.
After the downgrade, NYCB announced on Wednesday The company announced the appointment of former Flagstar Bank President and CEO Sandro Dinero as executive chairman. Mr. Dinero, who previously served as non-executive chairman, said he would “work collaboratively” with NYCB President and CEO Thomas Cangemi, who led the Flagstar merger, to “improve all aspects of the bank’s operations. ”It turns out.
Cangemi announced on Wednesday that NYCB is in the process of bringing on a new chief risk officer and chief audit officer with experience in major banks, adding, “Currently, qualified individuals are currently filling these positions on an interim basis.” “I am doing so,” he announced.
To reassure investors and customers, NYCB also announced Deposits continued to grow this year, reaching $83 billion, with total liquidity at $37.3 billion, exceeding uninsured deposits of $22.9 billion.
Although NYCB’s stock price has remained stable, Morningstar DBRS joined Fitch and Moody’s in downgrading the bank’s credit rating on Thursday.
“Liquidity at $37.3 billion appears ample, but given last spring’s bank failure, negative headline risks, including a significant drop in NYCB stock prices, could ultimately shake customer and depositor confidence. We continue to be cautious given the possibility.” Morningstar DBRS analysts said:.
Last year’s failures of Silicon Valley Bank, Signature Bank, and First Republic Bank (largely due to rising interest rates) have placed local banks under increased scrutiny from rating agencies.
new york cb claim to be We are the second largest multifamily housing portfolio finance company in the United States and the leading multifamily finance company in the New York City market area, specializing in rent-regulated, non-luxury apartment buildings.
In lowering NYCB’s credit rating to junk, Moody’s analysts wrote, “This could lead to trust sensitivities.” “The company’s increased use of market funds may limit the bank’s financial flexibility in the current environment.”
Former FDIC Chair Sheila Baer told Yahoo Finance on Thursday. Most apartment complexes that fall under the commercial real estate category are actually “great places to live.” But some areas, particularly New York state, which has fairly strict rent control laws, are having some trouble. ”
Baer said it was important not to “contaminate the entire sector,” but there were problems with segments of CRE that included urban offices and some urban retail. Many local banks “have significant exposure to depressed parts of the market and will need to weather that.”
“I hope they book well enough,” Baer said. “But let’s see. If we don’t, we’ll probably see a few more bank failures. But it’s nothing like what we saw in 2008.”
Appeared in 60 minutes Sunday, Federal Reserve Board Chairman Jerome Powell said: He doesn’t foresee a repeat of the 2008 financial crisis, but said, “Some banks will be forced to close or merge because of this.” I think most of them will be small banks. ”
Recent concerns over the value of commercial real estate could increase the price of jumbo mortgages and make them harder to obtain, as local banks have traditionally been the primary financial institutions.
According to daily rate lock data tracked by Optimal Blue Mortgage Market Index, the “spread” between interest rates on jumbo and conforming mortgages widened after the closure of Silicon Valley Bank on March 10, 2023. This trend continues this year.
The “spread” of matching huge mortgages expands
Historical spread between jumbo and conforming mortgage rates.Source: Inman analysis of Optimal Blue rate lock data Retrieved from FREDFederal Reserve Bank of St. Louis.
“Unlike conforming loans, which are primarily financed through mortgage-backed securities (MBS) through the capital markets, the jumbo mortgage sector is financed almost entirely through the banking sector, with some regional banks “We’re more focused on jumbo mortgage lending than banks,” Fanney said. May forecasters warned last March. “Ongoing liquidity stress could limit our home financing and, as a result, our sales in relevant market segments and areas with high jumbo concentrations.”
According to Optimal Blue data, during January and February 2023, the spread between jumbo mortgages and conforming mortgages averaged about 1 basis point, with jumbo mortgage rates sometimes equaling conforming mortgage rates. (basis point is 1/100th of a percentage point).
Spreads for the remaining 10 months of 2023 (March to December) averaged 19 basis points. So far this year, the spread through February 7 has averaged 46 basis points (nearly 0.5 percentage point).
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