NYCB, a struggling $78B resi mortgage servicer, to receive $1B equity investment

Key Takeaways:

– Long Island-based bank faced pressure after debt ratings downgrades and internal control deficiencies
– CEO DiNello sees investment as positive endorsement of turnaround efforts
– Mnuchin believes investment provides sufficient capital and supports credit risk profile
– Bank’s liquidity and capitalization ratios discussed on February 7 call
– Bank aiming for 10% CET1 ratio, cut dividend to assist with capital generation
– Analysts estimate MSR sale could improve CET1 ratio by 10 to 15 basis points
– NYCB became large residential mortgage servicer after Flagstar acquisition
– Transaction involving sale and issuance of common stock and convertible preferred stock expected to close on March 11
– NYCB stock trading at $3.80, up 18% from previous closing
– Jefferies LLC is financial advisor and sole placement agent in the transaction.

HousingWire:

The Long Island-based bank was under more pressure after rating agencies Fitch and Moody’s downgraded its debt ratings on March 1. This followed the company’s disclosure of internal control deficiencies and a $2.4 billion goodwill impairment.

DiNello said in a statement that the investment is “a positive endorsement of the turnaround that is underway.” It also allows the bank to “enter this next chapter with a strong balance sheet and liquidity position supported by a diversified and retail-focused deposit base,” he added.

“In evaluating this investment, we were mindful of the Bank’s credit risk profile,” Mnuchin said in a prepared statement. “With the over $1 billion of capital invested in the bank, we believe we now have sufficient capital should reserves need to be increased in the future to be consistent with or above the coverage ratio of NYCB’s large bank peers.”

On a call on February 7, management told analysts that the bank’s total liquidity was $37.3 billion, with a coverage ratio of 163%. Its capitalization ratio, measured by its common equity tier 1 (CET1), fell to 9.1% as of December 31, 2023, down from 9.59% in the third quarter.

Targeting a 10% CET1 ratio, the bank cut its quarterly dividend from $0.17 to $0.05 to assist with capital generation. Analysts at Keefe, Bruyette and Woods (KBW) estimate a mortgage servicing rights sale (MSR) could improve the bank’s CET1 ratio by 10 to 15 bp basis points.

NYCB became a large residential mortgage servicer after the acquisition of Flagstar. Its owned servicing portfolio reached $78 billion in unpaid principal value (UPB) at the end of 2023, with a carrying value of $1.1 billion, according to the KBW analysts.

In connection with the transaction, which is expected to close on March 11, NYCB will sell and issue shares of common stock at $2 and a series of convertible preferred stock with a conversion price of $2. NYCB stock was trading at $3.80 on Wednesday around 3 p.m. EST, up 18% compared to the previous closing.

Jefferies LLC is the exclusive financial advisor and sole placement agent to NYCB in the transaction.  

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Property Chomp’s Take:

So, have you heard about New York Community Bank (NYCB) lately? They’ve been making some big moves in the financial world.

Recently, the Long Island-based bank faced some challenges when rating agencies like Fitch and Moody’s downgraded their debt ratings. Plus, they had to deal with internal control deficiencies and a hefty $2.4 billion goodwill impairment. Yikes! But CEO Joe DiNello remains optimistic, calling it a “positive endorsement of the turnaround that is underway.”

And guess what? The bank just received a major investment from none other than former Treasury Secretary Steven Mnuchin. With over $1 billion in capital injected, NYCB is feeling pretty good about their balance sheet and liquidity position. Mnuchin even mentioned that they now have enough capital to handle any potential future reserves increase.

During a recent call with analysts, NYCB shared that their total liquidity is sitting at $37.3 billion with a coverage ratio of 163%. Their capitalization ratio, however, dipped to 9.1% by the end of 2023. To boost capital generation, they decided to slash their quarterly dividend and are eyeing a 10% common equity tier 1 (CET1) ratio.

To help improve their CET1 ratio, the bank is considering selling off some mortgage servicing rights (MSR), which could potentially bump it up by 10 to 15 basis points. After acquiring Flagstar, NYCB’s owned servicing portfolio hit $78 billion in unpaid principal value.

In an effort to strengthen their financial standing, NYCB is set to close a transaction on March 11, involving selling and issuing shares of common stock at $2 and convertible preferred stock with a conversion price of $2. The market seems to be responding positively, with NYCB’s stock trading at $3.80, up 18% from the previous closing.

With Jefferies LLC as their financial advisor, NYCB is navigating these changes with determination and strategic planning. As they enter this new chapter, it’s clear that NYCB is focused on fortifying their position in the financial landscape. Exciting times ahead for this bank!

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