NYCB lost another 12% this morning, now down to $3.69. NYCB-PA dropped 14% as even preferred shareholders are capitulating. The preferreds yield 10.95% at this morning's price.
In another move reminiscent of First Republic, NYCB issued a
press release saying their deposit base is fine and actually increased in January, and their total liquidity exceeded uninsured deposits. Those uninsured deposits were $22.9B, or 27% of deposits! There's no crisis here, 3 days into it, lol!
My problem with NYCB is that I don't know how to analyze the solvency of their office or multifamily residential clients. It would take a very good analyst, possibly with access to private records, to dig through all those clients, sort them by danger of default, and then arrive at a correct verdict about the future solvency of NYCB.
The stability of those $22.9B in uninsured deposits depends upon the perceived stability of the loans, and the depositors might have no better visibility than I do into the loans. Bank management can say the loans are fine, but bank management also appears to be in turmoil, if not a civil war. If I had uninsured deposits at NYCB, I would be nervous about the bank hitting a period of illiquidity while the Feds arrange a marriage. It would also take me more than 3 days to make a decision and move funds, as we observed with First Republic last year.
On the bright side, the
5-year treasury is near 4%, the
NFCI signals plenty of market liquidity, and
commercial mortgage rates appear to be well below 6% in a time with
historically low vacancy rates. Plus the 2023 experience showed that uninsured deposits will eventually be covered in the event of isolated bank collapses, and that the Fed has some tricks up its sleeve. NYCB has generated hundreds of millions of dollars in free cash flow for each of the past 3 years, and with the dividend cut they might be able to direct most of that firehose of cash at managing defaults. As a last resort,
the Fed's discount window offers liquidity at 5.5-6%.
I would not expect that NYCB was willing to loan to rent-controlled apartment building operators against the full market value of the building, because the value would be impaired by being rent-controlled. They would have lent based on income. No, NYCB probably cannot seize and quickly resell the building at a price that would make sense for condo conversions or teardowns, but they probably have the latitude to refinance loans or forgive a few payments rather than foreclosing. In that sense, they might be looking at manageable losses IF depositors and governments cooperate.
Still,
@chasesfish's approach of buying or holding just outside the epicenter of the crisis (e.g. VLY, down 9% so far today, or DCOM, down 8% today) is the game plan that worked in 2023 and might work again in 2024 unless there is a full-fledged CRE/housing bubble crisis. A crisis becomes less likely by the day as rates stay low. If the less-concentrated banks have their stocks beaten down but do not die, we could see another year of bank stock opportunism. If 2023 is the model, you buy right when the Fed launches their next liquidity enhancement program. Maybe this time it will be expanding collateral for the discount window to include lower-rated CRE mortgages and MBS.
