NYCB shares rise as $5 billion loan sale to JPMorgan bolsters liquidity

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A New York Community Bank stands in Brooklyn, New York City, on Feb. 8, 2024.

Spencer Platt | Getty Images

New York Community Bancorp‘s shares rose about 3% before the bell on Wednesday after the lender agreed to sell a portfolio of about $5 billion in mortgage warehouse loans to JPMorgan Chase.

The deal on Tuesday with the largest U.S. bank by assets will bolster NYCB’s liquidity as the new management team targets a return to profitability next year.

“The loan sale… is an important first step for management to restore credibility as the team looks to improve profitability,” analysts at Jefferies wrote in a note.

The turmoil in the last few months, sparked by a surprise quarterly loss in January, has wiped billions off the NYCB’s value, led to a mass exodus of bankers and shrank its total deposits.

The new management, led by former Comptroller of the Currency Joseph Otting, has pledged to shrink the lender’s non-core assets and retreat from commercial real estate (CRE) lending, which has been battered by fears of default amid higher interest rates and low occupancy.

Warehouse loans are lines of credit given to lenders who can use the funds to provide mortgages. They are repaid when the mortgage lender sells the loans to an investor.

Such loans accounted for 6%, or $5.2 billion, of NYCB’s total $82.3 billion, as of March 31.

“This is arguably one of the more profitable businesses, in our view, and the path to a respectable return on tangible equity will continue to be a difficult,” analysts at KBW wrote.

Raymond James said it had a “mixed” opinion on the sale and reiterated its “underperform” rating.

“Aggressive underwriting for multi-family and CRE loans will take an extended period to resolve, and that the risks increase should rates continue to rise,” the brokerage wrote in a note.

NYCB’s shares were last trading at $4.11 premarket on Wednesday. The stock is down roughly 62% so far this year.

In May 2023, JPMorgan had acquired the assets of First Republic Bank to resolve the largest U.S. bank failure since the 2008 financial crisis and draw a line under a lingering banking turmoil.

Talent migration

NYCB’s net interest margin will continue to face pressure due to deposit challenges, stemming from the departure of certain teams it acquired as part of its Signature Bank buyout, Raymond James wrote.

Nearly 200 bankers from its private and commercial banking teams have left, the bank’s executives disclosed on an earnings call earlier this month.

Some showed up at smaller rivals like Peapack-Gladstone Financial and Dime Community Bancshares.

NYCB will invest proceeds from the sale in cash and securities, it has said. It expects the deal to close in the third quarter.

https://www.highcpmgate.com/f0c2i8ki?key=d7778888e3d5721fde608bfdb62fd997

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