Trading of Long Island-based lender New York Community Bancorp halted on the New York Stock Exchange following a sharp drop of over 40% in its share price.
“Struggling New York Community Bancorp announced a $1 billion capital raise and a leadership shakeup on Wednesday, headlined by former Treasury Secretary Steve Mnuchin.” CNBC reported.
As reported by CNBC:
Shares of struggling New York Community Bancorp. fell more than 40% on Wednesday amid reports that the regional bank is seeking a cash infusion.
Reuters and The Wall Street Journal reported on Wednesday that the bank was looking to outside investors for cash to shore up its balance sheet. NYCB did not immediately respond to CNBC’s request for comment.
The stock was halted for news pending when shares were down 42%.
Shares of the bank were already down sharply the day before the reports. The stock is now below $2 per share after starting the year above $10.
A cash infusion would be the latest development in a turbulent start to the year for NYCB. The bank disclosed in late January that it was dramatically raising the allowance for potential loan losses on its balance sheet, with its exposure to commercial real estate being a potential issue. That was followed shortly by Moody’s Investors Service downgrading the bank’s credit rating to junk status, and NYCB naming former Flagstar bank CEO Alessandro DiNello as executive chairman.
Remember that New York Community Bank acquired specific assets and took on liabilities from Signature Bank through its subsidiary, Flagstar Bank, last year. This action followed a bank run and was facilitated by the FDIC.
However, almost one year later, New York Community Bank is on the edge of instability after taking huge losses due to its overextension in commercial real estate mortgages.
“By NYCB’s own account, 44% of its entire loan book is mortgages to apartment complexes, half of that to rent-stabilized units whose landlords are struggling mightily as their own costs rise. The deposits these banks rely on are a flight risk because more of them exceed the government’s $250,000-per-account insurance limit,” Semafor reported.
Reports indicate that NYCB has promoted its chairman, Alessandro DiNello, in efforts to stabilize the company.
Moody’s Investors Service has recently downgraded New York Community Bank (NYSE: NYCB) to junk status, citing “multi-faceted financial, risk management and governance challenges” after its stock plummeted amid losses on commercial mortgages.
“It downgraded all the bank’s long-term ratings to Ba2 from Baa3, which is junk status, partly on concerns about turnover of the firm’s risk management leaders, and warned the assessments remain on review for further downgrade.” CNBC reported.
“The downgrade reflects Moody’s views that NYCB faces high governance risks from its transition with regards to the leadership of its second and third lines of defense, the risk and audit functions of the bank, at a pivotal time,” Moody’s wrote, according to CNBC. “In Moody’s view, control functions with strong knowledge of a bank’s risks are key to a bank’s credit strength.”
DEVELOPING…
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