New York Community Bancorp Was JPMorgan’s Top Regional Bank Pick for 2024; It’s Lost 73 Percent Y-T-D and Had Its Deposit Rating Downgraded to Junk

[Gunnar Larson]

https://wallstreetonparade.com/2024/03/new-york-community-bancorp-was-jpmorgans-top-regional-bank-pick-for-2024-its-lost-73-percent-y-t-d-and-had-its-deposit-rating-downgraded-to-junk/


By Pam Martens and Russ Martens: March 5, 2024 ~

New York Community Bancorp’s tumultuous share price descent began on
January 31 when the bank filed an 8K form with the SEC indicating a $260
million net income loss in the fourth quarter; a dividend cut from 17 cents
to 5 cents; and a $552 million provision for credit losses on commercial
real estate. (Year-to-date, the company’s share price has lost 73 percent
of its market value. Yesterday, its shares closed at $2.73, down 23 percent
from the prior trading session on Friday, when the shares had lost 26
percent. )

Somehow, JPMorgan banking analyst Steven Alexopoulos was able to swat the
gargantuan warning signs of January 31 away like a pesky gnat on an
otherwise perfect day. On February 1, Alexopoulos penned a missive
recommending that investors “take advantage of this valuation and
accumulate shares on this weakness.” To drive home his strong buy
recommendation, he wrote: “Not only do we maintain our Overweight rating,
but NYCB remains our top pick for 2024.”

JPMorgan’s bank analyst call on NYCB is turning out to be another
embarrassing black mark at JPMorgan Chase, a bank that seems to have
enshrined scandals and felony charges as part of its mega bank business
model.

JPMorgan’s strong buy rating on New York Community Bancorp came a mere 34
days ago. Here’s what has happened since then:

On February 6, Moody’s downgraded the bank’s credit rating to junk. Moody’s
also warned that a third of the bank’s deposits lack FDIC insurance.

On February 29, NYCB made new filings with the SEC, this time announcing
that its President and CEO, Thomas R. Cangemi, was being replaced by the
Executive Chairman of the Board, Alessandro (Sandro) DiNello. In a separate
filing, NYCB announced alarming “material weaknesses,” writing as follows:

“…as part of management’s assessment of the Company’s internal controls,
management identified material weaknesses in the Company’s internal
controls related to internal loan review, resulting from ineffective
oversight, risk assessment and monitoring activities. Although assessment
of the Company’s internal controls is not yet complete, the Company expects
to disclose in the 2023 Form 10-K that its disclosure controls and
procedures and internal control over financial reporting were not effective
as of December 31, 2023. The Company’s remediation plan with respect to
such material weaknesses is expected to be described in the 2023 Form 10-K.”

“Material weaknesses” are two words that credit rating agencies never want
to read in a deposit-taking bank’s filings with the Securities and Exchange
Commission. After markets closed last Friday, Moody’s cut the deposit
rating on NYCB’s commercial bank by four notches, moving it deep into junk
territory.

That can’t have gone over well with the folks holding large amounts of
uninsured deposits at the bank. (The Federal Deposit Insurance Corporation
(FDIC) insures commercial bank accounts up to $250,000 per depositor, per
bank. Corporations and institutions frequently hold sums much greater than
that at commercial banks.)

On March 28 of last year, the Chair of the FDIC, Martin Gruenberg,
delivered a report to the Senate Banking Committee on why Silicon Valley
Bank and Signature Bank had failed last year. Among numerous problems, he
noted the following:

“In the immediate aftermath of the failure of SVB [Silicon Valley Bank] and
Signature Bank, some preliminary lessons can be identified. A common thread
between the failure of SVB and the failure of Signature Bank was the banks’
heavy reliance on uninsured deposits. As of December 31, 2022, Signature
Bank reported that approximately 90 percent of its deposits were uninsured,
and SVB reported that 88 percent of its deposits were uninsured. The
significant proportion of uninsured deposit balances exacerbated deposit
run vulnerabilities and made both banks susceptible to contagion effects
from the quickly evolving financial developments. One clear takeaway from
recent events is that heavy reliance on uninsured deposits creates
liquidity risks that are extremely difficult to manage, particularly in
today’s environment where money can flow out of institutions with
incredible speed in response to news amplified through social media
channels.”

Yesterday, we wrote about the insightful investigation by financial
watchdog, Better Markets, into how New York Community Bancorp ended up in
such a mess. Better Markets’ researchers found the following:

“In late 2022 and early 2023, the federal banking regulators inexplicably
approved not one, but two, mergers for NYC Bancorp in rapid succession.
First, in December 2022, Flagstar was acquired by NYC Bancorp and at the
same time Flagstar acquired [New York Community Bank]. Then, only about 100
days later, Flagstar was selected as the winning bidder by the FDIC to
acquire the failed Signature Bank (‘Signature’). A bank acquiring and
integrating any one of these transactions in isolation would be challenging
under the best of circumstances, it is inexplicable that the banking
regulators allowed them in tandem under extremely stressed conditions.”

And this:

“…over the course of just two quarters, Flagstar’s two acquisitions
quadrupled its asset size, from $25 billion on September 30, 2022, to $123
billion on March 31, 2023. It also more than doubled its employee count,
from about 2,800 in September 2022 to 6,800 in March 2023.”
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