On January 31, 2024, the New York Community Bancorp (NYCB) shocked market participants with a loss of $252 million in the fourth quarter of 2023 after booking huge provisions on its commercial real estate (CRE) portfolio, particularly multifamily and office, which was accompanied by a sharp dividend cut.
The troubles for the stressed bank, however, deepened when nearly after a month of its quarterly earnings release, it disclosed a huge goodwill impairment charge of $2.4 billion, which resulted in a tenfold increase in its fourth-quarter earnings loss to $2.7 billion. The turmoil exacerbated with the bank flagging noticeable gaps in its internal loan review controls (stalling submission of its regulatory filings) and the abrupt departure of its CEO, Thomas Cangemi, after 27 years of service.
Both Moody’s and Fitch have downgraded the bank twice in the past month. Fitch lowered the long-term issuer default rating to junk status i.e. ‘BB+’/Negative on March 1, 2024, after taking it down to ‘BBB-/Negative’ on February 2, 2024, while Moody’s cut the bank’s long-term debt ratings deeper into junk territory at B3 (outlook under review) on March 1, 2024, after taking the bank two notches lower to ‘Ba2’ a month back.
The challenges aggravated when on March 6, 2024, the bank’s already pressured shares plunged below $2 — down more than 80% year to date — amid reports of a stock sale, resulting in a trading halt. To regain investor confidence, the bank announced a $1 billion plus equity investment anchored by former US Treasury Secretary Steven Mnuchin's Liberty Strategic Capital, Hudson Bay, and Reverence Capital (completed on March 11, 2024), which led to a rebound in shares.
As part of the financing arrangement, a slate of new Board members (including Steven Mnuchin) as well as a new CEO (the second change in one week) i.e., Joseph Otting, former Comptroller of the Currency, was also announced. Furthermore, the bank disclosed a ~5% decline in deposits year to date (as on March 5, 2024) and slashed its quarterly dividend for the second time since January.
While the challenges are largely centred on NYCB, the rout has sparked jitters in the banking industry, raising alarms particularly around the state of the teetering CRE sector and prompting for increased regulatory oversight.
