April 14, 2024

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Troubled bank NYCB is considering a capital increase, source says

Troubled bank NYCB is considering a capital increase, source says

(Reuters) – New York Community Bancorp is seeking to raise capital, a person familiar with the matter told Reuters on Wednesday, as the beleaguered bank aims to boost confidence after a month-long ordeal that wiped out 69% of its market value.

The bank's shares fell another 42% following the news, which was marked by trading being halted several times due to volatility.

Shares of peer companies, including Valley National Bancorp and Citizens Financial, fell more than 1% each, with the KBW Regional Banking Index down 2.4%.

The New York Commercial Bank did not immediately respond to a Reuters request for comment.

The bank has been under pressure since it announced a surprise loss in the fourth quarter on January 31, affected by higher provisions linked to its exposure to the beleaguered commercial real estate sector, and a reduction in its profits.

It also cut its dividend by 70% to shore up capital to deal with tougher regulations for banks with assets of $100 billion and above.

Last week, the bank revised its quarterly loss to $2.7 billion, citing a $2.4 billion goodwill impairment, and replaced its CEO.

The New York Commercial Bank also disclosed that it had identified “material weaknesses” in internal controls associated with its review of the loans.

The bank said the weaknesses relate to “ineffective oversight, risk assessment and monitoring activities” but will not affect its financial results for the 2023 financial year.

Internal controls are processes to ensure the accuracy and reliability of a company's financial reporting.

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Several Wall Street analysts have cited concerns that a lender's exposure to CRE may also require it to build additional capital buffers to absorb potential losses on loans.

“We believe this review of internal controls could lead to additional CRE-related reserve building, particularly with respect to the company's New York City-regulated multifamily exposure,” the Wedbush brokerage wrote in a note earlier this month.

New York Commercial Bank has pledged to reduce its exposure to CRE. Multifamily properties — apartment buildings with more than four units — have been the bank's primary focus for five decades.

Loans associated with these properties accounted for 44% of New York Commercial Bank's $84.6 billion portfolio as of Dec. 31. Approximately 8.3% of these loans are “call-in,” meaning an increased risk of default.

“We do not see a sale as a likely outcome for New York Commercial Bank,” Citigroup analyst Keith Horowitz wrote in a note last week following the bank’s disclosure. “In our view, the New York Fed is on its own to figure out how to correct course.”

News of the capital injection was first reported in The Wall Street Journal.

(Reporting by Niket Nishant and Manya Saini in Bengaluru and Anirban Sen in New York; Editing by Anil D'Silva and Sriraj Kalluvilla)